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Car
Insurance - Customers Paying More
AA British
Insurance Premium Index Records Biggest Ever Premium Increases
- Car cover costs rose by more than 7% over last quarter of 2009
- Both home buildings and contents rise sharply
- Aggregator rates rise fastest
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.
Home insurance premiums are also rising, with the cost of home buildings
cover continuing to rise sharply while a falling trend in the cost of contents
premiums has been reversed.
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.
Car insurance: record premium increases
Main Index findings for fourth quarter 2009:
- Average quoted premium for an annual comprehensive car insurance policy
rose over the third quarter by 7.2 per cent to just over £1,000
- Average quoted premium for Third Party, Fire & Theft (TPFT) cover rose
by 8.9 per cent to £1,252
Shoparound index, an average of the three lowest quotes for each
‘customer' in the basket of risks
- Comprehensive cover rose by 11.3 per cent to £613, while TPFT rose by 13.9
per cent to £788
NEW: Aggregator findings:
- Average quoted premium for both comprehensive and TPFT cover rose by 12.7
per cent, comprehensive to £674 and TPFT to £684.
- Average Shoparound premium increased for comprehensive by 9.6% to £506 and
for TPFT by 10.8% to £602.
Annual movements:
- Average quoted premium for comprehensive cover rose by 18.7 per cent: by
far the largest annual increase since the Index started in 1994
- TPFT cover, typically bought by young and newly-qualified drivers, rose by
23.8 per cent over the year
- The Shoparound premium rose by 22.6 per cent over the year for
comprehensive cover and an unprecedented 33.4 per cent for TPFT
These results do not include the 20 per cent premium increase
announced by Zurich earlier this month.
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.
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car insurance with Money Expert.
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