Renew now to save £100 on your car cover before premiums rise

Motorists can slash the cost of their car insurance premiums by purchasing a new policy ahead of the incoming loyalty penalty ban.

The cost of car insurance is at its lowest point in six years, according to the comparison website Confused, having fallen 16pc over the past 12 months.

The average premium now stands at £514, it found, £ 97 less than last year. This comes despite drivers taking to the roads once again following the end of lockdown restrictions.

Costs for older drivers are falling at a slower pace than for younger drivers, while those in cities have seen prices fall quicker than country dwellers.

Drivers in London have seen premiums decrease by the greatest amount over the past year, with the average cost falling by £164, or 17pc, to £804. Drivers in Manchester and Merseyside have seen their premiums fall by £159, or a fifth, and are now paying on average £646 for their policies. Motorists in the South West saw the smallest change in costs over the past year, saving £ 53 compared with 12 months ago, with the average premium now £346.

Confused’s Louise O’Shea said the main reason for the price drop was a reduction in claims. However, other experts said the low premiums were an attempt by insurers to lure in policyholders ahead of incoming pricing reforms next year.

For years, insurance firms have kept the best deals for new customers while charging existing policyholders more when they renew. This is known as the “loyalty penalty” as customers who do not shop around each year have paid more as a result of the practice.

Following intervention from the City watchdog, the Financial Conduct Authority, from January insurers will no longer be able to charge renewing policyholders more than they would a new customer. As a result, premiums for new customers are likely to become more expensive.

James Blackham, of By Miles, the pay-as-you-go car insurer, said: “The insurance industry knows that it will be harder to attract new business and easier to retain customers in the new year, so they’re filling their boots now.”

There will still be ways to cut the cost of your car cover next year, even if deals for new customers become more expensive. Paying up front for the year’s premium will save money, as monthly payments can have interest of between 15pc and 35pc added. Setting a higher excess can also reduce your premiums as you take on part of the risk from the insurer.

Similarly, adding an additional driver to your policy, such as your partner, may reduce your premium. However, it may also raise it. Telematics boxes can also save motorists money by monitoring how they drive.