Car insurance jumps by £113 in just one year
CAR insurance bills have soared by almost a fifth in the past year.
Controversial government reforms to personal injury compensation, tax rises and bogus whiplash claims have pushed up the average premium from £577.22 to a record £690.35, the AA says.
The £113 increase means average premiums have increased 19.6 per cent – seven a half times the rate of inflation. Bills have accelerated more quickly recently, with the average premium rising 8.3 per cent, or £53, in the three months to the end of June. Drivers aged between 17 and 22 have borne the brunt, with a 10.6 per cent jump to £1,770.92 over that period.
The AA described the spiralling bills as ‘depressing’, and said they should serve as a ‘serious wake up call for the government to reverse decisions that have hit hard working families hard in the pocket’.
It said the ‘main culprit’ was the reform to the rate used to calculate compensation payments for victims of life-changing injuries.
Insurance companies had been allowed to deduct money from payouts on the basis that the victim invests the lump sum and earns interest. To reflect record low interest rates, this rate was changed in March from 2.5 per cent to minus 0.75 per cent, meaning insurers have to increase compensation on the assumption that victims will lose money in real terms after inflation.
To combat this, insurers have pushed up premiums.
June’s rise in insurance premium tax from 10 per cent to 12 per cent has also driven up premiums on an estimated 36million policies.
Michael Lloyd, the AA’s insurance director, said: ‘This is depressing news for drivers and it’s completely unnecessary. Because young drivers are responsible for the greatest number and highest cost of injury claims, their premiums have taken the brunt of the rises.’ Home and contents insurance has also started to creep up, the AA said.
Firms have been criticised for penalising loyal customers by automatically increasing premiums when they renew. But James Daley, managing director of consumer group Fairer Finance, said the latest rises are the result of government actions, rather than profiteering by insurers.
‘Customers are going to see their premiums go up more sharply than ever,’ he said. However, Guy Anker of Money Saving Expert said: ‘Insurers are masters at hiking prices for loyal customers for no reason.’