Final three months of 2016 saw average comprehensive premiums grow by £35; uninsured drivers, increasing repair costs and whiplash claims to blame

Comprehensive car insurance premiums grew by an average of £35 in the last quarter of 2016, pushing current rates up to the highest levels seen since 2013.

Car insurance premiums to rise by £75 with new discount rates

According to the AA’s British Insurance Premium Index, motorists were charged an average of £633.06 for a year of comprehensive coverage in December, which is 5.8% more than they would have been charged three months earlier.

2016 as a whole saw comprehensive premiums grow by 11.7%, continuing a trend that has been in place since 2014. Third party, fire and theft premiums, which are mostly taken out by younger drivers, grew at an even fast rate, with premiums up by 19.4% compared with 2015.

UK government to crack down on expensive whiplash claims

Michael Lloyd, the AA’s director of insurance, cites uninsured drivers as a key reason for the increase. “I also believe the increases in Insurance Premium Tax – which will rise another 2% in June - and fraud continue to dog the industry,” he added.

Lloyd said most fraudulent claims are linked to unnecessary payouts for whiplash. “Claiming for an injury even if none was suffered is so embedded in British culture that 44% of respondents [to a recent AA study] agreed that making a claim for injury has become ‘an easy way to make money’”, he continued.

Another factor for the rising premiums is the growing cost of average repairs. David Brown, insurance partner at KPMG UK, said “The cost of accidental damage is rising fast so fast I believe it’s becoming a much bigger threat to motor policy price inflation than whiplash.

Car insurance premiums rise by 16.3% in a year, says AA

Brown explained that insurers had seen a 20% increase in the average cost for accident repairs. “I expect that when new figures come out over the next few months, there may be more bad news with costlier accidental damage repairs which may well lead to premiums suffering further upward hikes,” he added.

Lloyd said that young drivers are particularly hard hit by the rising premiums, and that the hike was fuelling growth in the number of uninsured drivers. “We join the British Insurance Brokers’ Association in calling on the government cut Insurance Premium Tax from the premiums paid by young drivers for the first two years of their cover,” he said. “It will help with the affordability of cover as they build up a no-claim bonus as well as ensure that they start driving legally.”

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Comments
8

24 January 2017
I have dealt with insurance companies in managing workplace injury claims and from experience we had to fight very hard to get companies to stop 'automatic' payment when a claim arrived once we contested claims they fell dramatically.

My wife was in a car struck by an HGV a few years ago and was immediately offered £1000 'go away' money - is it any wonder that it's seen as easy money.

Yes there are fraudsters but the insurance companies need to get their houses in order too.

I should stress that they should be paying out when people are actually injured.

24 January 2017
They should pay out when necessary, but only then, I had a prang a few years back where a young motor scooterist decided to collide with my front wing whilst I was stationary at lights, his insurance paid up for the repairs, no problem, but every year I did an online quote afterwards and put in about the non fault claim I would get calls telling me I can claim for injuries and I don't need to have seen a doctor, how could I have been injured, I said, my car only suffered a small dent in the front wing, doesn't matter they insisted and I hung up. This kept happening until the five year point when I no longer needed to mention the claim. Whether or not I could have got away with the claim I don't know but it is ridiculous to think that it may be possible.

24 January 2017
My relative had a very minor accident with someone a few streets away from me - the accident was 100% my relatives fault. The guy owned a small cheap-as-chips MG hatch and whilst it was being repaired, was given a new Golf GTi as a replacement car. However the part needed to repair his MG (a simple door skin) had to be ordered from the factory in China and it took 10 weeks to be delivered and fitted.

The total cost of replacing and painting a door skin? £4300 !!!

My relative did inform his insurers about them paying for a Golf GTi but they weren't interested and the £4300 repair bill went unchallenged.

And we question why insurance is so high? It's nothing more than daylight robbery by a cartel who all have their fingers in the same till.

24 January 2017
Paradoxically, far too many cars are written off by the insurance companies instead of repairing them. How can it be right that cars are written off for literally little money.

24 January 2017
And the defence of automatism continues to be used by insurance companies to evade making payments. Isn't it about time that this loophole was closed? Something Autocar should report on I think...?

24 January 2017
The insurance industry is, as above, a racket. The lack of regulation upon it is staggering. Insurers do what they like and get away with it.

Reforms in the courts have caused 'whiplash' claims to fall in their number every year since the changes came though in July 2013. The insurer's own data, plus that of the DWP Compensation Recovery Unit prove this.

Insurers sell a story so they can continue to ramp up premiums. The Govt and certain sections of the media swallow this whole.

Has anyone asked whether insurer's dividends to shareholders have fallen recently? No, because they have instead gone up! AVIVA, AXA and Direct Line Group all increased dividends at their AGM in 2016.

So, dear Sam, please do some research into the insurers who have a cartel reinforced by and Act of Parliament.

Simon

25 January 2017
** I'm involved in a (new) motor insurer so I have a degree of insight but also obviously perhaps I am a dreaded "expert"... **

Firstly, the tax on a premium has gone up from 6% 18 months ago, to 10% now, becoming 12% in June 2017. This is just purely the government taking more from it, and there isn't a huge margin for insurers to magically swallow this.

The overall motor market in the UK loses money - losses in total were about 103% of premiums last year.

Although a number of initiatives have come in to reduce the cost of PI claims to the market, inevitably companies have worked around it. Law firms have a variety of schemes which allow them to still pay for personal injury leads in ways that are (probably) compliant with the letter, if not the spirit, of the law. The reforms aimed at reducing actual whiplash claims haven't had much effect, and some new limitations are coming in which are far more severe and will have a bigger impact.

Insurers don't simply "pay up" for the sake of it - you have to bear in mind that "fighting" a claim, in which generally there is no practical evidence except for a "he said/she said" type argument, is expensive in admin and legal costs, and will often lead nowhere.

This is also why cars are written off frequently - as someone above notes, hire car costs can be absurd (check the profits of the non-fault hire companies if you want to see where the money is going), but there is little an insurer can do about it. If you have been hit by someone else who is wholly in the wrong (e.g. you were stationary at some lights) then you have the right to a replacement car, and whilst you can't have a Lamborghini whilst your Mini is being repaired, there is only so much one can do about "reasonability".

The costs of even a simple repair of a modern car can be expensive, and if airbags have gone off then it's often game over. Added to rental replacement costs, legal and admin costs (which customers frequently don't realise/see/appreciate), it's better for everyone to simply write a car off and/or get a case closed than drag it out.

There are also some peculiar legal precedents which have an effect on claims costs, and also profitability, of the industry. By way of example, if you as an insurer have negotiated a discount with a network of repair garages, you can claim the full cost of a repair from a third party insurer, even if you're only paying for the discounted rate, pocketing the difference. This practice was vindicated by a victory by RSA in the high court, and now everyone does it - to no one's real benefit.

Pete

30 January 2017
It is an inescapable truth that fraudulent claims such as whiplash injuries are pushing quotes higher. However, there are ways round having to take the hit for these yourself. Our research shows that if you call an insurer rather than relying on an online quote you are more likely to get a better deal and drive the cost of your policy down without having to reduce your coverage. You can find a list of freephone numbers on quickpages.org

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