Car insurance hits new high and rising

Car insurance premiums took another sharp upward jump over the last three months of 2008, rising by an average of almost 1 per cent per month, according to the latest benchmark British Insurance Premium Index from the AA.

The average quoted premium for an annual comprehensive car insurance policy based on over 80 quotes for each ‘customer' in a basket of 1,000 risks, has risen by 2.9 per cent since October to a new high of £741.66

The Shoparound premium, an average of the lowest three quotes for each risk, rose by 2.5 per cent over the same period.

Index figures for third party, fire and theft insurance - which is typically bought by young drivers - rose by 3.4 per cent to £931.31 for the average quoted premium while the Shoparound figure rose by 3.0 per cent to £618.91.

Over the past year, the average quoted premium for comprehensive insurance in the Index has risen by 8.7 per cent while the Shoparound index, which is closer to the premium that buyers can expect to pay for their cover, rose by 7.2 per cent.

"We expect this upward trend to accelerate," says Simon Douglas, director of AA Insurance. "Although the bank base rate has fallen and there is widespread price-cutting across credit-crunch Britain, the costs insurers face are rising fast. Personal injury claims and their associated legal expenses rose by around 22 per cent last year to about £6.16bn and are expected to hit £10.9bn by 2012. Whiplash injury alone represents around £66 for every car insurance policy sold. In addition, detected insurance fraud rose by around 17 per cent during 2008. All this is added to the expected 6 per cent increase in the cost of repairing accident-damaged cars so the insurance industry is under considerable financial pressure."

Simon Douglas adds: "Capital is also scarce within the current economic climate and some insurers will need to respond by reducing the amount of capital they have tied up in their business. This will also put upward pressure on rates.

"However, competitive pressure should prevent the 20 per cent increase in premiums that some commentators have suggested we should expect over the coming twelve months. Nevertheless, I expect average quoted premiums to have risen by 10 to 12 per cent by this time next year."

Simon Douglas also expects companies to become fussier about the risks they take on. "For instance, we have seen some insurers pull out of the third party, fire and theft market which is dominated by young drivers. In fact, about half of the UK's insurers won't cover young drivers at all."