Car insurance premiums highest ever - and still rising

The cost of an average annual car insurance premium rose sharply over the last quarter of 2006 to its highest ever level, the latest benchmark AA British Insurance Premium Index reveals.

The Index – which has been tracking car and home insurance premiums since 1994 – shows that over the past three months the average premium quoted for a comprehensive car insurance policy jumped by a massive 4.35 per cent to nearly £806.

The average premium paid by those who buy third party, fire and theft (TPFT) cover also rose again but only very slightly. The average premium now paid is a just 55 pence short of £1,000 – this type of insurance is typically bought by young drivers who not only suffer high premiums because of claims history but also have little no-claim bonus.

In sharp contrast, premiums for home insurance remain little changed – the average quoted premium for buildings insurance rose by 1.26 per cent to just over £209 while the average for contents cover fell slightly for the second quarter in succession, by half of one per cent to less than £148.

Car premiums: more of the same in 2007?

Comprehensive car insurance premiums are now almost double the average quoted in July 1994, when the Index was launched. The previous highest average quoted premium was £777.57, in January 2004.

“Since then, competitive activity led to a falling trend despite the fast rising cost of both accident damage and personal injury claims,” says Kevin Sinclair, managing director of AA Insurance.

“Other insurers are now following Norwich Union’s lead and have increased premiums to more realistic levels given that the cost of claims is rising at about 6 per cent per annum – and this is reflected in the Index.

“Over the past three quarters, premiums have risen by nearly 6 per cent and I believe this trend will continue.”

Third party, fire and theft insurance premiums are also likely to continue their upward trend. “Young drivers account for a quarter of all road fatalities and are five times more likely to have an accident than a driver aged 35-plus. Premiums reflect this shocking record while many insurers will no longer cover young drivers.”

Comprehensive car insurance

Over the last quarter of 2006, the average quoted premium rose by 4.35% to £805.70 (up 1.24 per cent to £772.13 over the previous quarter)
Premiums have risen by 5.7 per cent year-on-year
The Shoparound premium (an average of the lowest three premiums for each risk quoted in the Index) rose by 1.96 per cent from £458.81 to £467.82

Third party, fire and theft insurance

Average quoted premiums rose by 0.12 per cent to £999.45 (up 4.62 per cent to £998.21 over previous quarter)
Premiums have risen by 6.27 per cent year-on-year
The Shoparound premium (an average of the lowest three premiums for each risk quoted in the Index) rose by 2.51 per cent to £547.67