The AA Index : motor insurance premiums fall by £2

According to the latest AA British Insurance Premium Index, the largest car insurance premium increases since records began appear to have ended.

The broker’s benchmark Shoparound index, an average of the cheapest three quotes from a range of insurers for each ‘customer’ in a UK-representative basket of risks, fell by 0.3 per cent (just £2) to £921 over the three months ending 30^th September.

At the end of March 2011, premiums had risen by over 40 per cent over the previous 12 months.  The annual rise has now dropped to 16 per cent for the 12 months ending September, giving hope that the worst of the price hikes are over.

Simon Douglas, director of AA Insurance, says: “The past two years have seen the biggest-ever rises in premiums as insurers struggled to close a widening gap between premium income and claims costs.  Although historically costs had been rising, premiums had not and, at the end of 2009, for every £100 taken in premiums £123 was being paid out.

“Something had to give,” he says.  “But the gap has now closed sufficiently to allow insurers to start pricing more competitively once again.”

However, he warns there are still inflationary pressures for insurers and that the respite may be short lived.

“I believe that this fall is a respite rather than the start of a trend.  Premiums are likely to continue rising next year, but at a much more modest rate,” he adds.

“I would be concerned if they do start falling because after a time, it could lead to a repeat of the past two years’ sharp premium inflation.”

The steep upward premium increases recorded by the AA’s Index attracted the attention of the Commons Transport Committee, which is continuing an inquiry into the cost of car insurance.  More recently, the Office of Fair Trading started a probe into the industry while the Justice Minister announced reform of the way that personal injury claims are managed: including an end to so-called ‘referral fees’.  This is regarded as one of the principal causes of premium increases.

Introduction this year of continuous insurance enforcement (CIE) to tackle uninsured driving; the launch early next year of a dedicated police insurance fraud unit funded by the insurance industry and moves to allow insurance companies to access customer data held by the DVLA are all also expected to help insurance companies control fraudulent claims over coming months.

“I expect these moves to help the insurance industry manage costs which, in turn, should help avoid big premium increases in the future,” Mr Douglas says. “But the fact remains that while the number of accidents on Britain’s roads is falling, the number of personal injury claims continues to rise and I’m glad that this is at last going to be brought under control.”

Over the past six months, premiums for young drivers have also shown signs of falling.  They fell by over 5 per cent during the previous quarter but have since risen again slightly.

Recent statistics from the Department for Transport suggest that the number of crashes involving death and serious injury amongst young drivers are falling although they remain significantly higher than for other age groups.

Education, changes to the driving test and development of new black-box ‘pay by performance’ insurance solutions should all help young people start their driving careers responsibly and safely, Mr Douglas believes, but points out: “There will need to be strong evidence that these reduce the number of serious crashes experienced by young drivers before premiums fall much further for them.”

Car insurance premiums at a glance: Third quarter, 2011

– Average Shoparound premium for a comprehensive car insurance policy is now £921.38, a fall of 0.3 per cent over the past three months and a rise of 16.4 per cent over 12 months. This is an average of the cheapest three quotes for each ‘customer’ in the basket of risks.

– Market average premiums (average of all quotes for each ‘customer’ in the basket of risks)for a comprehensive car insurance policy £1,449.85, a rise of 0.8 per cent over the past three months; 16.0 per cent over 12 months.  This is a rise of 277.1 per cent since the Index started in 1994

– Ups and downs of an annual comprehensive car insurance policy according to the AA’s Shoparound average, since 2004:

• October 2011: £921.38
• October 2010: £791.82
• October 2009: £568.62
• October 2008: £503.43
• October 2007: £463.07
• October 2006: £450.01
• October 2005: £450.43
• October 2004: £455.55

 – Regional winners and losers:

• Shoparound Index by age and gender:

• Index summary:

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