Motor insurance : The AA British Insurance Premium Index shows premium rise slowing

According to the latest benchmark AA British Insurance Premium Index, the cost of both car and home insurance appears to be levelling off, with welcome but small falls in the cost of cover for young drivers and for home insurance.

This follows two years of unprecedented premium increases.

The average Shoparound cost of an annual car insurance premium increased overall by 3.6 per cent over the three months ending 30 June 2011 to £923.90, the lowest rise for 18 months.  Nevertheless, over 12 months, the Shoparound premium has risen by 30.1 per cent.

However, for drivers aged 17-22, premiums fell by 5.6 per cent during the quarter – a welcome respite for young drivers after more than two years of sharp quarterly increases.

Simon Douglas, director of AA Insurance, says: “The easing of insurance prices is welcome news, especially for young drivers whose premiums have become unaffordable for many.

“I predicted last year that during 2011 we would see competitive pressure returning to the market which would help to reduce the rate of increase.

“This is the smallest increase we have seen for some time, and I believe that over the rest of this year we will at last see premiums level off, despite the gloomier predictions of other market commentators.”

Headline figures

Shoparound Index: Car insurance

The most welcome news in the latest benchmark AA British Insurance Premium Index is an unexpected fall of 5.6 per cent in the average Shoparound cost of an annual comprehensive car insurance policy for young drivers.

This has helped to bring the overall Shoparound average increase to just 3.6%, the smallest quarterly premium increase for nearly two years.

The Shoparound index calculates the average of the cheapest three premiums from a range of insurers for each ‘customer’ in a UK representative basket of risks.

Says Simon Douglas, director of AA Insurance: “Young drivers have for a long time been the biggest losers in the insurance market with premiums driving them off the road.  They share the greatest number of serious crashes, premiums have been rising at a disproportionate rate, but it seems at last that insurers are starting to compete a bit more for their business with rates starting to come down.”

Nevertheless, the average Shoparound premium for a 17 to 22-year-old is £2,294 compared with the £924 average.  However, Mr Douglas warns that with the end of gender-based pricing in December 2012; young women under 25, who typically pay premiums up to 40 per cent less than their male counterparts, can expect to see a sharp rise in the cost they pay for their cover.

The average premium paid by 17-22 year-old men is currently £2,872 and for women £1,671.

Commenting on the overall slowing in premium increases, Mr Douglas believes that insurers have done sufficient work to overcome most of the underwriting losses of the past couple of years.

 “At the end of 2009, for every £100 taken in premiums, £123 was being paid out in claims.  By the end of 2010 this had fallen to £116 and I believe that the gap has closed further since then.  This is encouraging insurers to price more competitively which is benefiting every driver, but especially young drivers.”

In addition, new legislation is helping to restore confidence for car insurers.

 “The recent introduction of continuous insurance enforcement means that it is now illegal to keep a registered car that is neither insured nor recorded as off the road through a Statutory Off Road Notification (SORN).  The Motor Insurers’ Bureau is now writing to the owners of all vehicles on the DVLA database that are not insured, encouraging their owners to take action or face a fine and possible confiscation of the vehicle.

 “Similarly, the police have been very successful in stopping uninsured drivers – last year, they confiscated over 150,000 cars being driven illegally.”

Other developments that will help to reduce insurer costs include the setting up of a dedicated police fraud unit and, in the longer term, a new industry-wide fraud database and access to DVLA driver data for insurers.

 “Fraud continues to be one of the biggest challenges facing the insurance industry,” Mr Douglas points out.  “According to new figures from the Association of British Insurers, the value of detected fraud amounts to £17.5 million per week, an increase of 9 per cent over the previous year.

 “However, we believe that this is just the visible tip of the iceberg – beneath the waterline there is a serious culture of insurance crime that must be stopped.

 “While insurers are getting better at identifying attempts at fraud, the formation of a new police fraud unit early in 2012 will help ensure that insurance criminals are brought to book much more quickly.”

One of the biggest contributors to premium increases has been false and exaggerated personal injury claims, Mr Douglas points out.

 “One recent case involved a claim for over £1m by a man who said that he had to rely on a stick to walk and a wheelchair, yet he was witnessed uncoupling and pushing a caravan without difficulty.   He was jailed for nine months.

 “It’s vital that the industry strongly gets the message over that there will be no hiding place for those who attempt to rip off their insurance company.”

Mr Douglas added that he welcomes the recent public outcry over the no-win, no-fee claims culture that has encouraged people to make false or exaggerated injury claims.

 “The sooner legislation is introduced to bring to an end the cold-call marketing of accident management firms; the better it will be for everyone.”

Regional car insurance winners and losers

Regionally, the biggest jump in car insurance premiums over the three months ending 30 June was London with a 4.8% rise to an average Shoparound premium of £1,069 – overtaking Yorkshire to become the second most expensive region to insure a car.

In Yorkshire, premiums increased by 3.1 per cent to a Shoparound average of £1,058.  And despite an increase of just 1.4 per cent, the North-west retains top position in the premium leaderboard.

The cheapest region to insure a car remains Scotland with an average quoted Shoparound policy price of £556, up by 1.9% over the quarter. It is perhaps also no co-incidence that claims management firms don’t operate in Scotland, where the legal system is very different.

*Insufficient number of risks for analysis

Further data is available on age and gender by calling Ian Crowder on 01256 492 844 or ian.crowder@theAA.com

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