Fraud pushes biggest car insurance premium rise
Fraud is helping to push car insurance premiums up at their fastest-ever rate, according to the latest AA British Insurance Premium Index.
During the quarter ending 30th June, premiums rocketed by more than 11% - the biggest increase recorded by the benchmark study since it started tracking quarterly car and home insurance premium trends 16 years ago.
The index's average Shoparound premium topped £704 for an annual comprehensive car policy, up 11.5% in just three months. The previous biggest increase was only six months ago.
The Shoparound average for policies sold through price comparison sites rose even more sharply, by 12.7%.
Shoparound premiums for third party, fire and theft cover (TPFT), often bought by young drivers, climbed by 15.9% and by 17.1% on the price comparison site Index.
Edmund King, AA president, says: "The latest British Crime Survey (published 15 July) suggests that crime levels are falling, but crucially, it misses a new 21st-century wave of fraud such as providing false information and claiming for non-existent personal injuries which just isn't being picked up."
He points out that premiums on price comparison sites have been rising fastest. "It's now much easier to get an insurance quote on-line, for example, comparison sites can enable dishonest individuals to manipulate information to get a lower premium. Insurers are increasingly charging higher prices to these people to cover the increased fraud risk."
"This quarter's record increase comes on top of previous record rises. For those shopping on comparison sites, average premiums have climbed by an eye-watering 32.8% - or £193 - in just nine months. Even those taking the cheapest prices have typically seen them rise by £98."
"Last year, the cost of meeting claims exceeded premium income by 22% and the spiralling increases we're seeing show that insurers are trying to fill that chasm."
More rises in the pipeline
Simon Douglas, director of Britain's leading car and home insurance broker, AA Insurance, believes that premiums still have some way to rise.
He says that, for the first quarter he can recall, not a single provider reduced their average premiums while those on the comparison sites are rising at a faster rate than the market as a whole, gradually closing the premium gap.
"Insurers have been making huge underwriting losses - some estimates suggesting that for every £1 taken in premiums, £1.22 is being paid out in claims. The losses have been made worse by poor investment performance and the weak £, so insurer reserves are running on empty. We've already seen one cut-price insurer, Quinn, going into receivership partly because it was writing unprofitable, low-cost business for young drivers.
"Since January last year, average quoted premiums have risen by over 30% and I won't be surprised if, by the end of 2010, we'll have witnessed an unprecedented 50% rise in just two years."
Young drivers hit hardest
The biggest premium increases are reserved for customers buying TPFT cover, typically bought by young drivers buying cheaper, older cars.
"More and more insurers are withdrawing this type of cover because it is unprofitable. In a few years it could well disappear altogether," Douglas believes. "As it is, it's often possible to buy comprehensive insurance cheaper than TPFT. In addition, under-21-year-olds looking for cover on a price comparison site will find that fewer than half of the companies listed will offer a quote."
Douglas says he is concerned that many young drivers might be tempted not to insure their cars at all.
"But you're unlikely to get away with it. Number-plate recognition equipment on police cars and at the roadside quickly identifies uninsured vehicles which can soon result in prosecution and the car being confiscated and crushed.
"After that it will be extremely difficult and even more costly to obtain insurance in future."
Rising claims
Douglas says that claims inflation is largely to blame for premium increases.
"Although the number of accidents on Britain's roads has thankfully been falling, the cost of repairing cars has been rising at a rate of between 7 and 10%.
"Added to that, the number and value of personal injury claims being made following car accidents has been rising. Many people who may not have bothered to make a claim for minor or even non-existent injuries in past accidents are being encouraged to do so by unscrupulous accident injury claim lawyers.
Douglas also says that despite the UK's falling crime levels, insurance fraud is increasing. He point out that it is easy to be ‘economical with the truth' when buying insurance with online applications, making it easy to manipulate information such as ignoring past claims or convictions, to get the cheapest price. Fraudulent personal injury claims have also been increasing according to many insurers and new statistics to be published by the Association of British Insurers shortly are expected to show a significant jump in the cost of detected fraud to the insurance industry.
"Ultimately, all of this fuels the cost of insurance, as the Index dramatically illustrates."