Car insurance premiums set for steep rise

The average quoted premium for an annual comprehensive car insurance policy rose by more than 1 per cent over the first quarter of 2009, according to the AA's latest benchmark British Insurance Premium Index.

This is the first time for several years that there has been a first-quarter increase in car insurance premiums.

The average quoted premium, based on data from over 80 insurance providers on a basket of 1,000 ‘customers', rose by 1.3 per cent to £751.60. The Shoparound index, an average of lowest three premiums for each ‘customer' and is closer to the premium most people will pay, rose by just under 1 per cent to £504.38.

Simon Douglas, director of AA Insurance, says: "Although 1.3 per cent may not sound much, premiums fell during the same period in each of the past five years, so this increase is a significant indication that insurers are determined to address past underwriting losses this year, as we predicted last year.

"Premiums tend to fall a little during the first three months of the year. It's when most car insurance renewals take place while the new March car registration change prompts customers to look for new insurance cover, so competition between insurers tends to hold premiums in check.

"But the industry is facing escalating costs, falling investment income and underwriting losses. Premium rises are therefore inevitable."

Simon Douglas points out that theft, fraud, personal injury claims and legal expenses are all contributing to increasing costs.

"Figures issued by the Association of British Insurers show that the value of detected fraud rose by 30 per cent last year. Insurance cheats add an estimated extra £40 to the average premium paid by honest motorists.

"In addition, theft claims for modern expensive cars, where thieves first steal the keys by either robbery or burglary, rose by 15 per cent over the six months to April, compared with same period last year.

"Personal injury claims and their associated legal costs also continue to rise, especially as the recession takes hold."

Mr Douglas believes that for every £100 in premiums received by motor insurers; around £105 is paid out in claims. He adds that the economic downturn has also contributed to reduced investment income and depleted reserves from which insurers pay claims.

"Over the past 12 months, the average quoted premium for comprehensive insurance rose by nearly 11 per cent. I expect premiums to increase by at least a similar percentage over the rest of 2009." he adds. "However, brokers such as AA Insurance are well placed to find the most competitive deals."