Car insurance premiums have ramped up by 11% over the last year, according to figures from the Association of British Insurers (ABI), which not only makes it the fastest annual increase on record, but also means that typical premiums hit a record high of £484 in the second quarter of the year (April-June).
As a result, the typical driver will now spend £48 more on an insurance policy than they would have done at this time last year, with car insurance premiums having risen by around four times the rate of inflation. They've increased particularly sharply in the last three months, rising by £22 (or 4.8%), with much of it thought to be due to changes to the Discount Rate and the further Insurance Premium Tax (IPT) hike.
The Discount Rate is used to calculate the most serious personal injury payouts, used in situations where those who have suffered "catastrophic injuries" are awarded a lump sum. The rate is based on Government bonds, but since the returns that can be achieved by such bonds are now negative once inflation is taken into account, the Discount Rate has also been cut to negative levels (-0.75%).
However, this will have increased costs for insurers as they're essentially paying out more for such claims, and as expected, they're passing on those costs to consumers in the form of higher premiums.
Then there's the rate of IPT, which was raised to 12% on 1 June, marking the third increase in little more than 18 months and meaning the rate has now doubled since November 2015 (when it stood at a mere 6%). Again, consumers are bearing the brunt of that increase, and are paying more as a result.
"This dramatic increase [in motor insurance costs] drives home how important it is the Government press ahead with a new framework for the Discount Rate and call a stop to further hikes in Insurance Premium Tax," said Huw Evans, director general of the ABI.
"The UK is one of the most competitive motor insurance markets in the world, but the unprecedented increase in claims costs is driving up prices to record levels. Most younger and older drivers are likely to face increases even higher than this, hurting the people who can least afford it. Worryingly these increases are unlikely to be the end of the road if reinsurance premiums go up at the end of the year, adding further costs to insurers."
This all means that it's more important than ever to make sure you're getting the best car insurance premium possible, and if you want cheap insurance quotes, it's all about comparing the options. Start the process by using our car insurance quote tool to see the kind of deals available, and hopefully, you'll be able to avoid too much of a price hike.
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