Car insurance premiums rise by £100

THE average annual cost of insuring a car is expected to top £800 for the first time this month, figures show.

The average premium has risen by £100 (14 per cent) over the past year and £200 over the past two years, according to the online price comparison service comparethemarket.com.

Analysts say the trend will continue after a range of factors combined to drive prices up, including repeated increases in the insurance premium tax first introduced by George Osborne.

It has risen three times since 2014, doubling from 6 per cent to 12 per cent, with the cost being passed on directly to consumers. The latest rise comes into effect today, as the tax goes from 10 per cent to 12 per cent and impacts on not just car premiums but home cover and private medical policies.

The Association of British Insurers estimates the latest rise will add £47 to the average household bill.

Another reason given by car insurers for more expensive premiums is a change to the way compensation for long-term injuries is calculated. This will cost insurers more in meeting claims and that will, in turn, be passed to customers.

Analysts also point to the insurers’ reduced ability to profit from “sideline” activities as a reason for rising costs.

Comparethemarket’s Simon Mcculloch explained that a few years ago car insurance premiums were often lossleading, and insurers made their money by investing the cash received in premiums, selling policy add-ons, and through “claim referral fees”. However, those additional income sources are now drying up.

On top of that, said Mr Mcculloch, insurance costs tend to be cyclical, getting more and less expensive along a time cycle of roughly seven years. He said that even before premium tax hikes and other factors had an impact, car insurance costs were rising as per the cycle, and this has accelerated.

“It’s a perfect storm out there at the moment, with numerous factors coming to push prices higher, [something] which I expect to continue as the year progresses,” he said.

As well as price increases across the board, the difference between the cheapest policies and an average policy has also been increasing, and it hit a quarterly all-time high at the start of the year.

But that means that drivers can still make substantial savings by shopping around and changing provider.

One potential silver lining for motorists, however, is the Government’s plan to crack down on fraudulent personal injury claims.

The Government has proposed that whiplash payouts should be capped and that a ban on claims without medical evidence should be introduced. Aviva, the UK’S largest insurer, detected more than £85 million in fraudulent claims last year, with bodily injury fraud – including whiplash claims – accounting for 59 per cent.

The insurer is currently investigating more than 16,000 suspicious physical injury claims, with one in 10 whiplash claims declined due to proven or suspected fraud last year.

Tom Gardiner, head of fraud at Aviva, said: “It is clear that there continues to be an urgent need for fundamental reform of how minor personal injuries are compensated.

“In the case of ‘cash-for-crash’ gangs who fraudulently buy policies to make bogus claims, innocent motorists are put at risk and scarce public resources are directed away from those who are really in need.”