Car insurance getting out of hand? Here’s what to do
MOTOR insurance costs are likely to soar in the coming months as a result of a double whammy of rising taxes and a proposed change to compensation costs. Here, JEFF PRESTRIDGE examines how motorists can combat the rises.
WHY ARE CAR INSURANCE PREMIUMS ON THE INCREASE?
TWO changes are conspiring against motorists. First, insurance premium tax, applied to all motor policies will rise in June from 10 per cent to 12 per cent. Experts say this will add £10 a year to the cost of the average motor policy taken out after June.
Secondly, unless the Government does a U-turn before March 20, premiums will also rise as a result of insurers being required to give bigger payouts to victims of serious accidents. This could push up annual premiums by £50 to £75. Website Confused.com says the average comprehensive motor policy costs £767 a year.
ARE THESE CHANGES SET IN STONE?
THE hike in insurance premium tax was announced by Philip Hammond, Chancellor of the Exchequer, in last November’s Autumn Statement. Although there is mounting pressure on Hammond to abandon the increase in this week’s Budget, it is unlikely.
Indeed, some experts believe he could announce a further increase, maybe to 15 per cent, which would kick in later this year.
George Osborne, the previous Chancellor, was of the opinion that insurance premium tax should over time be aligned with Value Added Tax. This suggests a target rate of tax of 20 per cent.
The increase stemming from the requirement for insurers to give motor accident victims larger compensation payments also appears irreversible, in the short term at least. Despite frantic exchanges between insurance representatives and the Chancellor, it looks as if further ‘consultation’ is the only prom- ise that has been extracted from Hammond.
WILL THE IMPACT BE FELT BY ALL MOTORISTS?
NO driver will escape the double whammy. But it will hit hardest those who are already struggling with their finances. These include the just about managing (the so-called ‘Jams’) whom Prime Minister Theresa May has pledged to help.
Also young drivers – already paying through the nose for cover – will feel the pinch, as could older drivers who may find the added cost just too much. Drivers in high insurance areas such as London and the conurbations of the North West will suffer as well.
CAN MOTORISTS FIGHT BACK?
SHOPPING around for cover when an existing policy comes up for renewal always makes good sense. This can be done through a comparison website or by using a broker via website biba.org.uk run by the British Insurance Brokers’ Association.
A broker will prove especially useful for young drivers and those with penalty points on their licence.
Other savings tips include paying for cover up front rather than by monthly direct debit to avoid interest charges. It may also pay to agree to a higher excess in the event of you being involved in an accident.
Drivers, especially younger ones, should consider having a black box installed in their car. Provided they then prove to the insurer they are responsible motorists, they will be rewarded with premium discounts.
Edmund King, president of the Automobile Association, says drivers should not be tempted to circumvent rising insurance costs by driving without cover – or buying a policy in their own name with a younger family member as a named driver when the car is primarily used by the son or daughter. This is called ‘fronting’ and is deemed to be a type of insurance fraud.