Drivers should steer clear of motor insurance premium rises

Motorists faced with steep rises in their insurance premiums will still be able to find better value deals elsewhere, a new report from leading financial research company Defaqto predicts. And firms trying to both raise premiums and maintain market share will find it “almost impossible”.

Defaqto points to the fact that two-thirds of insurers who allow customers to buy on the internet offer discounts for doing so. Many firms also offer cashback deals through aggregator websites such as edealsUK and Quidco with some insurers offering as much as £110. The average cashback on Quidco is £54 and £20 on edealsUK.

Norwich Union shocked customers in September announcing premium rises of up to 16 per cent with others predicted to follow. But Defaqto believes drivers will still benefit from low premiums as competition intensifies in the £7.4 billion motor insurance market.

Its latest report “Motor Insurance in the UK – Adapting to Survive” says average premiums, particularly for comprehensive cover, are hardly moving. Report author Brian Brown, Defaqto’s head of General Insurance research, says: “The intense amount of competition in the market at present is keeping comprehensive premiums from rising despite well reported industry views that they must increase.

“With the internet it is now so easy for customers to shop around and so many insurers are still giving introductory discounts, cashbacks or guarantees to beat other quotes, that there is little if any need for customers to stick with their existing insurer when faced with premium increases.

“The dynamics of the market at present may make it almost impossible to both raise premiums and hold market share.”

He believes the key to whether or not premiums rise is held by Royal Bank of Scotland, which owns Churchill. If it does not raise prices others will struggle to push through increases. Instead more companies may follow the lead of Legal & General which has pulled out of the motor insurance market altogether.

One way insurers are getting their money back is through increases in fees for a range of transactions including changing a customer’s address and cancelling a policy. These fees can be as much as £75 to cancel a policy.

The report shows around 62 per cent of insurers now charge for policy adjustments; 35 per cent charge for duplicate documents; and 66 per cent charge to cancel a policy.

But Defaqto warns the industry could face a clampdown on these fees unless they can justify the charge. Similar action was taken against the credit card industry this year over so-called delinquent charges with firms forced to cut them to £12.