Car insurance premiums slump from all-time high

The average cost of car insurance fell slightly over the first quarter of 2007, after ending last year at an all-time high, the AA’s benchmark British Insurance Premium Index shows.

The index – which has been tracking car and home insurance premiums since 1994 – shows that the average quoted premium for an annual comprehensive car insurance policy fell marginally, ending the quarter at £802, just £4 less than the all-time high of nearly £806 following the massive 4.35 per cent increase during the last three months of 2006.

The average premium paid by those who buy third party, fire and theft (TPFT) cover also fell by a similar percentage, to £993.

Both home buildings and contents insurance premiums remain steady – buildings cover showing its second quarterly increase of a little over 1 per cent while contents cover also rose by just under 1 per cent, reversing a slight fall over the previous three months.

Car premiums: temporary respite?

Although the brakes appear to have been firmly applied on the increasingly steep upward trend that comprehensive car insurance premiums have shown over the past year, they now stand only marginally below their all-time high.

“I had expected premiums to continue rising and I think the underlying pressure is still upward. Most insurers continued to apply small increases in an effort to close the gap between premium income and claims costs,” says Kevin Sinclair, managing director of AA Insurance.

“Some distributors – especially online providers – are taking advantage of the rising trend to offer big introductory discounts and that has checked premium averages. But there is a limit to how long they can hold back the tide.”

Kevin Sinclair points out that over the past year premiums rose by nearly 6 per cent. “I believe that we will see further increases as the year progresses,” he adds.

Third party, fire and theft insurance premiums are also likely to continue their upward trend despite a slight fall over the past quarter. “This type of cover is typically bought by young drivers. Premiums reflect the facts that under 21-year-olds are five times more likely than those aged 35-plus to have an accident.”

Comprehensive car insurance

Over the first three months of 2007, the average quoted premium fell by 0.41 per cent to £802.44 (up 4.35% to £805.70 over the previous quarter)
Premiums have risen by 5.8 per cent year-on-year
The Shoparound premium (an average of the lowest three premiums for each risk quoted in the Index) fell by 0.67 per cent from £467.82 to £464.69

Third party, fire and theft insurance

Average quoted premiums fell by 0.62 per cent to £993.28 (up by 0.12 per cent to £999.45 over previous quarter)
Premiums have risen by 3.8 per cent year-on-year
The Shoparound premium (an average of the lowest three premiums for each risk quoted in the Index) rose by 2.31 per cent to £560.33

Home insurance premiums remain static

Another relatively mild winter has led to fewer claims for cold weather damage such as burst water pipes. Although some insurers are increasing premiums these rises are offset by heavy discounting by others.

Kevin Sinclair believes home insurance will rise in future. “But it will take several significant weather events to cause sustained premium increases. Insurers are concerned about the long-term effects of climate change – but it seems that in the short term mild winters are keeping claims – and thus premiums – relatively low. I’m starting to wonder – have we have found one of the few positive impacts of global warming?”

Home buildings insurance

Over the first three months of 2007, the average quoted premium rose by 0.78 per cent to £210.66 (up 1.26 per cent to £209.02 over the previous quarter)
Premiums have risen by 1.23 per cent year-on-year
The Shoparound premium (an average of the lowest three premiums for each risk quoted in the Index) fell by 1.23 per cent from £142.31 to £140.56

Home contents insurance

Average quoted premiums rose by 1.26 per cent to £149.13 (down by 2.03 per cent to £147.28 over previous quarter)
Premiums have fallen by 1.78 per cent year-on-year
The Shoparound premium (an average of the lowest three premiums for each risk quoted in the Index) rose by 0.83 per cent to £84.65

Kevin Sinclair points out that many cheap insurance deals come at the expense of benefits. “Although it’s worth shopping around, it’s also important to make sure you know what you are buying,” he cautions.