Car insurance premiums up again

The cost of car insurance has risen for the second quarter in succession, according to the latest AA British Insurance Premium Index.

The average quoted premium for an annual comprehensive insurance policy rose by 1.24 per cent, despite continued price cutting by some insurers, the Index for the third quarter of 2006 shows. Premiums for third party, fire and theft insurance – typically bought by young drivers – leaped by 4.62 per cent, more than cancelling out a small drop during the previous quarter and resuming a long-term upward trend.

Average quoted premiums for both buildings and contents cover, however, fell very slightly. The cost of buildings cover has changed little over the past decade, the tiny 0.33 per cent drop continuing that trend. Average quoted premiums for contents cover fell by 2.61 per cent over the past quarter, ending a generally upward trend over the past year.

Car insurance: will industry follow Norwich Union lead?

The continued rise of claims costs led the AA to predict a year ago that car insurance premium increases were inevitable. Norwich Union is the first major insurer to make a public statement about premium increases. The AA Index reflects quoted premiums over the past quarter and therefore reflects a trend that had already developed towards increasing rates.

“It has long been clear that the increasing cost of meeting both accident damage and personal injury claims would eventually have to be absorbed by increased premiums,” says Kevin Sinclair, managing director of AA Insurance.

“The increase is long overdue. Premiums have been kept artificially low by the entry of new insurers seeking market share and the growth of internet sales, coupled with underlying poor results hitting insurers accounts.

“Some companies will still hold back premiums for short-term gain but I expect other companies to follow Norwich Union’s lead. Two quarters’ rises may not be a trend but I believe average quoted premiums will continue to go up,” he says.

Third party, fire and theft premiums rose sharply over the past quarter.

“One in eight drivers is aged 25 and under, yet account for a quarter of all road fatalities – a shocking statistic of great concern to the industry,” says Kevin Sinclair. “Young people, who are a large proportion of the third party cover market, are paying the price and suffering the brunt of recent premium increases. The average premium being paid is now pence short of £1,000.

“Many companies don’t insure drivers who are under 21 and it’s likely that others will review their approach to young drivers.”

Over the past quarter:

Comprehensive car insurance

Average quoted premiums rose by 1.24 per cent to £772.13 (0.49 per cent to £762.70 over previous quarter)
Premiums peaked at £777.57 during the quarter ending 31st December 2003
The ‘shoparound’ premium (an average of the lowest three premiums for each risk quoted in the Index) fell by 1.35 per cent to £458.81.

Third party, fire and theft car insurance

Average quoted premiums for third party, fire and theft cover rose by 4.62 per cent to £998.21 over the past quarter, following a slight fall (0.17 per cent to £954.16 over the previous quarter)
The ‘shoparound’ premium fell by 1.62 per cent per cent to £534.26
Over the past two years third party, fire and theft premiums have risen by 21 per cent and have more than doubled since the Index started in 1994.

Home insurance – further falls

Although some insurers’ premiums rose for both home and contents cover, the general trend is stable and sharp increases in premiums are unlikely in the short term.

Over the past quarter:

Buildings cover

Average quoted premiums for buildings cover fell by 0.33 per cent (0.49 per cent over the previous quarter)
Average quoted premium is £206.42 (previous quarter £207.10)
The ‘shoparound’ premium fell by 0.32 per cent to £138.13

Contents cover

Average quoted premiums fell by 2.61 per cent to £148.10, following four successive small increases
The ‘shoparound’ premium fell by 0.75 per cent to £85.14.

“There’s still little movement in home insurance premiums, despite serious industry concern about climate change. Although one or two insurers are beginning to increase their premiums, the market remains ridiculously competitive. As motor becomes less predictable, household insurance is becoming the next battleground and is therefore the next big worry in terms of requiring a big price correction.”

Kevin Sinclair points out that customers should be careful to ensure that the cover they buy properly meets their needs when they are shopping around for home or car cover. “There has been a trend for some low-cost insurers to sacrifice benefits in order to reduce premiums. Many people may only discover this when they make a claim and their insurance doesn’t perform as they expect.

“One answer is to use a reputable broker such as AA Insurance, who will do the shopping around for you, without compromising on quality of cover.”