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The Actuary The magazine of the Institute & Faculty of Actuaries

UK car insurance premiums rising ‘five times faster than train fares’

The average quoted premium for a typical car insurance policy is at a four-year high after increasing by 11.7% over 2016 to £633.06 according to the AA’s latest British Insurance Index.

Motorists spending more for car insurance ©Shutterstock
Motorists spending more for car insurance ©Shutterstock

It shows that prices increased by £35 (5.8%) during the last quarter alone, with the annual rate now more than five times higher than the average train fare increase of 2.3% each year.

A rise in the cost of vehicle repairs are thought to be largely responsible for this premium increase, as well as a 50% rise in whiplash claims over the last decade, which the government announced in November last year that it was planning to curb.

KPMG UK insurance partner, David Brown, said: “The cost of accidental damage is rising fast – and I believe it’s becoming a much bigger threat to motor policy price inflation than whiplash.

“As of a year ago, insurers were seeing 20% rises in the cost of average repairs for damage to their policyholders’ cars.

“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.”

The AA’s research shows that detected insurance fraud costs the insurance industry £1.3bn a year, with the number of road traffic collisions falling by 39% over the past five years and the number of injury claims rising by 90%.

These rising claims are mostly as a result of whiplash, adding around £40 to the average car insurance premium each year according to the AA, although proposed government reforms are beginning to correct this.

The AA director of insurance, Michael Lloyd, said: “The number of personal injury claims has started to show signs of slowing and the Ministry of Justice has embarked on fresh reforms to curb cold-call culture which contributes to Britain’s unwelcome status as the ‘whiplash capital of Europe’.

“Insurance is based on claims experience.  It’s also extremely competitive and I have little doubt that if the number and cost of claims falls, then the cost of an annual insurance policy will also fall.”

There are now concerns about a rise in uninsured driving, which the AA believes is being fuelled by increases in Insurance Premium Tax (IPT) and rising premiums, particularly for younger drivers, who in some cases pay more than treble that of older motorists.

“Paying an average of over £1,400 for a year’s cover, compared with £380 for those in their sixties, young drivers have been particularly hard hit by the rise in IPT which, by June, will have doubled in less than two years, Lloyd continued.

“I believe that this is fuelling the rise in uninsured driving.  This isn’t a victimless crime because compensation for injury and damage to third parties, caused by uninsured drivers, is ultimately paid for by insurers to the tune of around £35 per policy.”