Drivers fork out over £2bn in excess on car insurance every year

UK drivers already spend £8.5billion every year on premium payments to insure their cars. New research out today, by price comparison and switching service uSwitch.com, reveals that 4.8 million motorists may have to fork out an additional £2.36 billion in excess costs alone each year if they make a claim on their car insurance.

uSwitch.com urges consumers to look at the real cost of voluntary excess; a saving of less than £100 on a car insurance premium could end up costing more than ten times this amount in the event of a claim.

Every car insurance policy carries an average ‘involuntary excess’ of around £79 which has to be paid by the policyholder in the event of a claim. This alone is not a huge expense. However, the research shows that on top of this ‘involuntary excess’, 50% (12.7 million) of all drivers also opt for a ‘voluntary excess’ which will vary from an average of £167 to anything up to £1,020.

Aron Thompson, Head of Insurance at independent online price comparison and switching service, uSwitch.com, says: “For some drivers, particularly those with less experience, a higher voluntary excess on their insurance policy can reduce their insurance premium by up to 40% or by up to £128 a year, but this is not the best option for every driver. With the average cost of a claim currently at £1,636, drivers with a maximum combined excess of £1,099 have to carefully weigh up whether to make a claim or not. Although they would get a refund of £537 from their insurance provider, they would also lose at least 2 years no-claims bonus (assuming they had at least 2 years unprotected no claims bonus at the inception of their policy) and potentially face a much higher insurance premium the following year.”

Consumers may not consider car insurance excess to be an issue as they only ever have to part with this money in the event of an accident. However, further analysis shows that a combined excess of £1,079 leads to a premium reduction of just £97 (25%). In the event of a claim, what seems to be a clever savings exercise becomes an expensive problem as the consumer ends up having to pay out more than ten times this amount in combined excess costs.

It is not unusual for young drivers (between the ages of 17-21) to have both a high voluntary and involuntary excess on their car insurance policy. More than 20% of young drivers opt for a combined excess above £379, although this increases to over 30% for young male drivers who have a combined average excess of £611. The implications of this mean that a young male driver, for example, would be expected to contribute nearly 40% towards the total cost of a claim.

Thompson concludes: “Although price plays a major part for consumers in deciding which car insurance to buy, consumers need to look beyond the lure of a low premium. The potential cost savings associated with a policy with a high voluntary excess can easily become an extremely expensive oversight in the event of a claim. It is alarming that such a high percentage of young drivers have excess levels between £300 and £1,020 as this is a false economy in the majority of cases (especially with a voluntary excess of over £500). There is no benefit for consumers to choose policies that will force them to fund the cost of a claim themselves because the voluntary excess level is too high.

“As always, shop around and make sure you fully understand the policy, the terms and conditions and any money you are expected to pay in the event of an accident. If you are an extremely low risk driver, a high excess may not present a problem but, beware, it still is a gamble.”