Car insurance prices jump 5% with more increases expected

21st July 2015


Average car insurance premiums have jumped by more than 5% as the AA warns that the “cheap premium days are over”.

Car insurance premiums have started to sharply rise again over the second quarter of 2015, the company reports.

This comes ahead of the Government’s unexpected hike in Insurance Premium Tax (IPT) which kicks in this November.

The AA’s British Insurance Premium Index – which has been running 21 years this quarter – shows that the average Shoparound quote for a typical comprehensive motor insurance policy has risen to £549.46, up 5.2% over the three months ending 30 June 2015.

Premium prices had levelled off over the previous two quarters and, over 12 months, the average quoted premium has risen 5.5%.

The premiums quoted are based on the cheapest five quotes for each category of customer in a nationwide basket of risks, using a combination of quotes direct from insurers, from brokers and from price comparison sites.

Younger drivers have for the first time seen the sharpest premium rises – those aged 23-29 have seen a 6.2% jump to an average of £682.62.  Those aged 70 and above saw the lowest rise, up 3.8% to £392.13.

The youngest drivers – aged 17-22 – are still quoted by far the highest premiums at an average of £1,241.81, up 4.4% over the past three months.

Janet Connor, managing director of AA Insurance, says: “Thanks to bruising competitive pressure, premiums have been falling while claims costs have continued to rise – particularly for personal injury.  Indeed, the number of injury claims reported has been increasing at around 10% per annum since 2013.

“So insurers have been releasing their reserves to maintain their competitive edge to the point where this is no longer sustainable – and we are seeing premiums beginning to rise once more.

“The days of cheap car insurance premiums are over – price rises are inevitable.”

Connor says that while she expected premiums to continue to rise steadily over the rest of 2015, the Chancellor’s 58% increase in Insurance Premium Tax, (from 6% to 9.5%), is likely to mean a much sharper rise.

“This stealth tax grab will add around £18 to the cost of a typical comprehensive car insurance policy and it has come at a time when insurers have no capacity to absorb that cost and will have to pass it on,” she says.

“Increasing IPT will have unintended consequences.  Not least is that more people are likely to shop around. This could lead to introductory offers drying up as insurers re-think their pricing. That will lead to a much sharper average increase than the tax rise suggests.

“I also fear that those on the lowest incomes may consider driving without cover, undoing the good work carried out to bring down the number of uninsured drivers.  If that happens, it will also put more upward pressure on premiums.”

However, Connor says she is glad that more reforms are to be introduced to control the activities of the claims management companies that are responsible for nuisance calls and text messages, encouraging people to claim for injuries they haven’t suffered.

“Our own research showed that 11% of drivers see nothing wrong with making an injury claim, even if no injury was suffered.

“Fraud of this sort costs car insurance customers around £50 on each policy bought. And while the industry is making important strides in detecting fraudulent claims, it needs the help of legislation to stop people ripping off their insurers in the first place.”

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