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Why has your car insurance premium shot up?

26 January 2012

Motorists all over the UK will be moaning as they discover their car insurance policies have rocketed.

The cost of motoring has increased dramatically over the last year and it’s not just rising fuel prices that are driving road users crazy. Premiums have shot up over the last 12 months, much to the dismay of drivers. They are also showing few signs of slowing down.

According to the latest figures by car insurance provider AA, the average cheapest annual premium increased by an eye watering 15% in 2011, now standing at £971.

High premiums

According to the AA’s British Insurance Premium Index, annual car insurance premiums shot up by as much as 40% in April last year. Whilst they began to level off afterwards, they appear to be on the move again. Shockingly, there was a 5% rise in car insurance premiums in the last three months alone!

The AA said it was surprised as premiums had taken a backseat, falling further in the third quarter of last year.

If you want to reduce your costs, compare car insurance with Money Expert.

Compensation culture

The Transport Committee recently published a report following an inquiry into the rising cost of car insurance.

They claim that UK drivers enjoy a ‘compensation culture’ which means that road users are making claims on minor incidents to receive big payouts.

As insurers have to fork out more in compensation, they increase the overall cost of insurance so they can afford the payouts. The majority of drivers don’t make injury claims, yet they often end up paying the price for others.

Simon Douglas, Director of AA Insurance, commented; "We must kill the compensation culture that has sharply driven up car insurance premiums.”

"We have long been concerned that the proliferation of personal injury and accident management firms has encouraged people involved in a no-fault accident to make personal injury claims or even fraudulently stage collisions in order to make such claims,” Douglas added.

This culture often involves people asking for payouts over minor whiplash incidents which are “almost impossible to clinically prove” in a lot of cases.
 
The cost of contesting false injury claims in court will often cost more than the injury compensation itself though, leaving honest drivers cornered.

In one case a female driver who was reversing into a narrow street to allow an oncoming lorry to pass accidently clipped a parked car outside a shop.

She found the vehicle owner and swapped details for the minor damage. However, the vehicle owner was awarded over £12,000 compensation for whiplash injures suffered by ‘three people’ in the car. As a result, the female driver’s insurance premiums are set to rocket.

"A claims culture has developed to the extent that it has become accepted that if another vehicle hits your car, you should make an injury claim. That's regardless of how serious the injury is, or even if no injury has actually been suffered. The Transport Committee has clearly recognised that this has driven up premiums for everyone,” Mr. Douglas continued.

What did the Transport Committee say?

MPs on the Transport Committee have blamed a huge surge in suspicious whiplash claims for the rise in motor insurance costs. They have suggested that whiplash claimants should be forced to justify their large claims and for the government to impose a higher threshold on standards.

They also want to put an end to the controversial practice of insurers cashing in on victims by earning a large cash sum from referring accident victims to personal injury lawyers.

Louise Ellman, Transport Committee Chair said; "Insurers, solicitors and claims management companies have themselves driven up the cost of motor premiums by encouraging people caught up in road accidents they did not cause to claim for personal injury, car hire, and other legal costs.”

“Although we strongly support access to justice, drivers should not be railroaded by cold callers into launching legal action. The insurance industry must abandon sharp practices that push up premiums such as passing drivers' personal data to other parties or taking secretive referral fees from solicitors, garages and car hire firms."

The MPs have also questioned the effectiveness of the government’s decision to ban referral fees relating to personal injury cases. They also want greater transparency to expose the ‘merry-go-round’ over referral fees.

Despite this, the Association of British Insurers (ABI) believes that more needs to be done.

Nick Starling, Director of general insurance at the ABI, said; “Referral fees should be banned altogether and not made more transparent – and that ban should apply to all organisations receiving them, not just insurers."

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