Tax, excess whiplash claims and price comparison websites are blamed for a sizeable hike in premiums
26 October 2016

Car insurance premiums have risen by almost £82 on average over the past year, with the blame falling on increased taxes, excess whiplash claims and price comparison websites.

The AA’s latest British Insurance Premium Index shows that typical premium quotes have risen by 3.7% over the last quarter and 16.3% over the past year. The index uses a pool of customers nationwide to obtain quotes to track prices throughout the year.

Michael Lloyd, the AA’s director of insurance, attributed the rise to three main causes. Two increases in Insurance Premium Tax (IPT) in the past year have added around £18 to the average premium, prompting Lloyd to urge chancellor Philip Hammond to “keep his hands off” when he makes his autumn statement on 23 November.

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“We are witnessing sustained price increases once again, which is bad news for drivers,” Lloyd said. “Motor insurance is a mandatory requirement and there is absolutely no justification for further hikes in IPT in the autumn statement. Coupled with predictive price increases, an additional tax burden would simply add to the growing number of uninsured drivers.”

Lloyd also highlighted the continuing costs of the whiplash “epidemic”, as well as the impact of price comparison websites on the insurance industry.

“In August, almost 70,000 small injury claims (of up to £25,000) were made, and more than 839,000 over 12 months, of which around 750,000 were for whiplash,” he said. “The whiplash epidemic has dogged the British motor insurance industry for a decade and continues to do so.

“Drivers are still being pressured into making claims for often minor collisions that they might have forgotten about. This is pushing up claims costs because insurers can’t prove that an injury wasn’t suffered.”

Mr Lloyd added that he recognised that whiplash can be a serious and debilitating condition but said: “The activities of claims firms make life more difficult for those with a genuine injury.”

Ministry of Justice reforms designed to curb claims firms' activities appear to have ground to a halt – a move that Lloyd reacted to with “despair”. The Ministry announced on 13 October that the reforms were being shelved but not abandoned.

A spokeswoman for the Association of British Insurers concurred with the AA’s position on IPT. The ABI released its own report earlier this month on how to tackle rising insurance costs. She said: “We also believe that delays with proposed government reforms to personal injury claims are costing motorists £3 million a day, based on the Government’s own calculations. Our report shows that personal injury claims, which make up 9% of total motor claims by number, actually account for 37% of insurers’ costs.”

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Of price comparison websites, Michael Lloyd said such sites encourage shopping only on price, not by the amount of cover of each product.

“There’s little incentive for insurers to offer low, loss-making introductory quotes on price comparison sites, because not only do they pay a fixed introductory fee that could be a substantial portion of the premium, but there is little likelihood that such customers will remain,” he said.

“Customers don’t necessarily recognise that a low initial premium is a first-year introductory discount, so they go elsewhere. Inevitably, this will tend to push those initial premiums up and perhaps offer greater scope for insurers to reward loyalty.”

James Dalton, the ABI’s director of general insurance policy, said: “Every motorist wants competitively priced insurance that meets their needs. Consumers benefit from a very competitive insurance market but insurers are facing the perfect storm of rising costs from personal injury claims, repair bills and Insurance Premium Tax.”

Phill Tromans

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Comments
3

26 October 2016
I had a minor bump at 5mph or less in Centreparcs car park (great start to holiday!!) a couple of years ago . I was plagued by many many calls from numerous companies telling me I should claim for whiplash ,I was told I could claim up to £6000 as I had kids in the car who probably had whiplash too (symptomless obviously) ,I told them all to get stuffed. Who passed my details to this scum ? Why my insurance company of course....what hypocrites.

27 October 2016
I also tell them to go away. This seems to be common with most people I know (cold calls: 'I'm ringing about your accident' which never even occurred sometimes.)

What bugs me equally is that insurance companies do not reward loyalty (AA included - who I am with for the second year). They put your premiums up in the second year and you may be forced to seek better alternatives. No claims discount seems irrelevant.

27 October 2016
Further to the above two comments, no one can disagree that getting all sorts of spurious phishing calls, texts or emails is very annoying and is due to the extremely poor enforcement of Data Protection in this country. I get 5 or 6 calls per day from claims agents, PPI claim companies, industrial deafness, etc, etc.

Regarding insurance premiums, the cost of insurance has not gone up due to claims. The number of claims has dropped in recent years and the amounts paid out in costs is diminished by the Fixed Recoverable Costs regulations which are entwined in the Civil Procedure Rules, fought for and agreed by the insurance industry. Insurers will not be happy until it is impossible for someone to make an injury claim at all.

Insurance Premiums have gone up this year due to and increase in Insurance Premium Tax from 6% to 9.0% and now to 9.5%, all of which were due to George Osborne's Budgets. He actually wanted to outlaw whiplash type claims entirely, something that the current Government has now moved away from (in the last week and the comments from the insurers now are not coincidental).

Additional insurance premium costs have been caused by the increases in dividends to their shareholders (specifically admitted at the AGMs of AXA, AVIVA and Direct Line Group). These dividends being increased as the investment yealds have been reduced by low interest rates.

There was an exceptional piece in the Independent a few weeks ago which gave all the true and relevant points.

Lets not forget, insurers promised that Fixed costs would reduce premiums, yet it did not. Less claims has still not caused premiums to drop.

The insurers have a licence to print money as, rightly, insurance is a legal requirement. They always paint a picture of poverty, yet they all return healthy profits and none have gone out of business, which isnt the case in the legal and claims management sectors where swathes of businesses have gone to the wall.

A large bucket of salt needed when the ABI speaks.

Simon

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