Car insurance premiums rise at record rates
Car insurance premiums, which have been rising at record rates over the past year, took their biggest ever upward jump during the last quarter of 2009, according to the latest benchmark AA British Insurance Premium Index.
The ‘Shoparound' premium - an index of the cheapest quotes - rose even more spectacularly, increasing by over 11 per cent, which suggests fewer cheap deals on car insurance.
The quarterly Index shows that over the year, the average quoted premium for comprehensive car insurance has accelerated steadily, adding over 18 per cent to the average premium quoted last year.
AA Insurance announced these findings on Wednesday 27th January at the re-launch of its Index, which has been tracking the movement of both car and home insurance premiums since 1994. The number of quotes on which the Index is based has more than doubled while premiums from price comparison sites are included for the first time.
Simon Douglas, director of AA Insurance, says that insurers have been struggling to overcome exhausted reserves while coping with sharp rises in settlement cost and frequency of personal injury claims. He point out that some commentators have said that average claims costs have seen payments outstripping premium income by up to 20 per cent and, as a result, the Index has seen its largest ever annual premium increase.
"Many insurers have been reporting significant rises in personal injury claims. Many people seem willing to pursue claims for even minor injuries, such as mild whiplash pain that in the past they wouldn't have bothered claiming for. This is encouraged by personal injury claims lawyers whose marketing urges people to make claims and whose costs, as well as compensation for the claim, are met by the third party insurer. This is becoming increasingly embedded in British culture and, ultimately, feeds back to premiums.
"The cost of accident damage has also been rising steadily, despite a fall in the number of accidents on Britain's roads. The spate of collisions during the recent wintry spells, resulting in about 30 per cent more claims than normal, may reverse that trend over the short term, though.
"In addition, insurers are suffering increasing fraud which contributes to rising costs. Only last week the National Fraud Authority (NFA) said that fraud is costing the country twice as much as previous estimates, while insurance fraud is costing the industry around £2 billion a year which amounts to £44 on every household's insurance budget.
"As a result, many insurers are reporting record underwriting losses. The situation is clearly unsustainable and the inevitable result is that premiums increase, despite the extremely competitive nature of the market."
Douglas points to the fact that both the Shoparound and Aggregator Shoparound premiums, which are close to what customers actually pay for their cover, are increasing at a significantly faster rate than the underlying Index trend.
"The sharp premium increases that the Index is recording suggest that the cheapest deals and offers are drying up," he says.
He adds that by the very nature of price comparison sites, buyers are less likely to be loyal - they will shop around again when their premium is due for renewal. "Insurers are well aware of this and are becoming less likely to offer generous introductory rates because there's little chance they'll retain the customer at a realistic renewal premium."
Will car insurance premiums continue to rise over 2010?
Douglas points out that premiums during the first quarter of each year have historically remained static as a high percentage of renewals take place at this time, while insurers compete for business during the March peak in car sales with the registration change.
"But last year, premiums rose significantly during the first quarter for the first time since the Index started. So far this month, there is no sign of premiums easing," he says.
"I believe we will continue to see premium increases over the coming year, and this is underlined by Zurich's announcement. They may, however, level off during the third and fourth quarters as insurers' ratios improve."
Douglas says that legislation changes over the coming year should also help to contain costs.
"New legislation to allow for the issue of electronic insurance certificate is expected this year which should streamline the process of issuing documentation.
"In addition, introduction of continuous insurance, which means it will become an offence to keep an uninsured car even if it isn't driven on the road, unless a Statutory Off Road Notification (SORN) has been made, is expected to help identify more uninsured drivers before they can cause damage to other people and property."
It is estimated that uninsured drivers represent around 1 in 20 vehicles on Britain's roads and claims involving them add around £30 to every annual motor insurance policy. "Both measures are to be welcomed although the real returns won't be noticed for some months."
In addition, new fast-track rules will be introduced by the Ministry of Justice to streamline the process and reduce the cost of meeting personal injury claims. "This is long overdue and is a welcome step," Douglas adds.