No sign of car insurance premium let-up

Car insurance premiums are rising at their fastest rate for nearly a decade and increased by more than 1 per cent per month over the past quarter, according to the latest benchmark AA British Insurance Premium Index.

Between April and June the average quoted premium for an annual comprehensive car insurance policy increased by 3.5 per cent to £778.13 and, for the year ending June 2009, premiums rose by more than 11 per cent.

The Index tracks average quoted premiums from 96 car insurers, brokers and insurance schemes across a representative basket of 1,000 ‘customers’ throughout the UK.

The Shoparound index, which is an average of the lowest three premiums quoted for each Index risk, and is more typical of the premiums most people will pay, also rose sharply: by 4.4 per cent to £526.42.

Simon Douglas, director of AA Insurance, says recent comments that premiums are static, based on quotes from aggregator websites, are misleading. “The fact remains that underlying premiums are rising more steeply than they have since 2000 because of rising costs. There’s no getting away from the fact that the industry continues to suffer underwriting losses, which are predicted to be in excess of £240 million this year.

“Customers are being tempted by cheaper quotes that offer lower levels of cover with high excesses so it is really important that they talk to their insurer to make sure that the cover meets their needs before they buy.

“Unusually, the Shoparound index rise is steeper than the underlying Index trend. This suggests that insurers and brokers who have been discounting most to gain market share through comparison sites are recognising the need for rates to rise to return the sector to profitability,” he says

This trend is reinforced in the 2009 Mintel Motor Insurance report, which pointed out that large premium increases are necessary to resolve lack of profitability, especially in the aggregator sector. Douglas agrees and says that price competition encouraged by comparison sites, at a time when costs continue to increase, isn’t sustainable in the longer term.

“Although the number of accidents on Britain’s roads is thankfully falling, the cost of claims continues to rise – particularly personal injury claims and legal expenses. During the current downturn, fraudulent claims are also putting pressure on premiums and I’m concerned that this is leading to an increase in the number of people who drive without insurance, currently estimated to be 1.6 million. The burden of claims involving uninsured drivers unfortunately falls to honest drivers, to the tune of £30 per policy.”

The Index also suggests that young drivers once again appear to be shouldering a greater share of premium increases.

“The average quoted premium for third party, fire and theft (TPFT) insurance, typically bought by young and inexperienced drivers, rose by 4.6 per cent over the quarter to £968.22. The Shoparound premium rose 5.3 per cent to £669.67,” Douglas says.

He points out that a growing number of insurers are withdrawing TPFT cover and only around half will quote for drivers aged under 21, who make 10 times more claims than drivers aged 35. Nevertheless, I believe the industry must do more to help young drivers get on the road safely and responsibly, rather than shutting the door on them or making premiums unaffordable.”

Douglas concludes: “I don’t see the pressure on premiums easing. Over the past three months more than 90 per cent of quotes in the AA Index added £5 or more to their premiums and only 2 per cent fell. During the previous quarter, 20 per cent had reduced their premiums.

“Last year I predicted that we would see premium increases of 10 per cent or more and current evidence supports this”.