The average premium quoted for a comprehensive car insurance policy is at its highest ever level according to the AA’s benchmark British Insurance Premium Index.
Confirming the chorus of concern expressed by many commentators and the financial pain felt by families, the average ‘Shoparound’ quote rose by 8.3% over the three months ending 30 June and an eye-watering 19.6% over 12 months.
The average Shoparound* quote at the end of the second quarter is £690.35 according to the Index, compared with the first quarter’s £637.51 and £577.22 a year previously.
Regionally, East Anglia has seen the biggest jump, rising by 11% to £677.14 over the three months. The smallest increase was in Northern Ireland, up 3.5% to £952.92.
Young drivers have taken the brunt of the premium increase, with a 10.6% rise to an average quoted premium of £1,770.92.
Michael Lloyd, the AA’s insurance director says: “This is depressing news for drivers and it’s completely unnecessary.
“The main culprit is the change in the government’s so-called ‘Discount Rate’ that applies to injury payments. For many years the rate was set at 2.5% but in March this year it was reduced to minus 0.75% which has significantly increased the value of compensation payments. The discount rate is based on returns from Government bonds and was overdue for review, but it was slashed by a much larger margin than anyone expected.
“The increase in compensation applied immediately to both lump sum pay-outs which can run to millions of pounds for very serious injuries, as well as to lifetime Periodic Payment Orders for life-changing injuries. As a result many insurers found themselves facing immediate financial losses because of the much larger reserves needed to meet future claims.
“Because young drivers are responsible for the greatest number and highest cost of injury claims, their premiums have taken the brunt of the rises.”
Lloyd also points out that increases in Insurance Premium Tax and the continuing scandal of false whiplash injury claims, encouraged by cold-calling law firms, has also contributed to the rises.
“Despite these increases the insurance industry remains extremely competitive and, to a certain extent that has also contributed to the sharp rises we see today. The culture of comparing prices online – which is the subject of a Competition & Markets Authority (CMA) investigation – has led insurers to offer unprofitable introductory rates to attract new business. That that has been underlined by expert research last month** suggesting that for every £100 taken in premiums, insurers are now paying out £109 in claims and costs.
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