Insurance tax drives car cover up by £100

CAR insurance costs have jumped by an average of more than £100 in a year.

Premiums have soared since Chancellor George Osborne increased insurance premium tax on November 1, leading to prices jumping by 10 per cent in the three months at the end of the year.

A typical annual comprehensive policy bought by a driver who shopped around for the best price rose by more than £105 in the final quarter of 2015, up by 20 per cent on the same time in 2014.

Prices soared by £59 on average between the third and final quarters of the year, according to the AA’s British Insurance Premium Index.

The rise, which is the biggest quarterly increase since 2010, came as insurers upped their prices following Mr Osborne’s move to increase tax paid on premiums from 6 to 9.5 per cent.

The AA said the move affected 7.3 million car insurance policies and that without the tax hike, prices would have increased by less than 7 per cent. But it warned the cost of insuring drivers had also risen because of personal injury claims.

It estimated false and exaggerated claims for whiplash and other injuries added about £50 a year to every policy.

Research by AA Insurance last year suggested one in ten drivers thought it was acceptable to make an insurance claim for an injury following a collision, even if no injury was suffered.

Michael Lloyd, director of AA Insurance, said he expected premiums to continue to rise this year but not at the same ‘exceptional rate’. He added that new legisla- tion to tackle whiplash claims should help to lower premiums.

‘The UK suffers the unenviable reputation for being the “whiplash capital of Europe” with the number of claims continuing to pile in, encouraged by vigorous cold-calling claims firms,’ he said.

‘It’s this acceptance that it’s OK to defraud insurers that has become endemic.

‘It is stealing and it affects the premiums paid by your friends, your family and your colleagues – those that most wouldn’t dream of defrauding.

‘The sooner new legislation to tackle whiplash claims becomes enshrined in law, the sooner that will be reflected in the premiums

‘Whiplash capital of Europe’

quoted for car insurance.’ Older drivers have been particularly hit by the premium rises, a study published last month found.

Motorists aged 50 and over saw the cost of their annual car insurance rise by an average of 16.4 per cent, compared to 10.9 per cent for all drivers and 1.5 per cent for younger drivers, according to the Consumer Intelligence Motor Insurance Index.

Insurance experts said it meant older people were ultimately subsidising smaller increases for younger drivers.

November’s increase in the insurance premium tax has been predicted to raise nearly £1.5 billion for the Treasury.