20th January 2015
Average car insurance premiums rose by just £1 in the last quarter of 2014, but they could be poised for a 10% increase this year, the AA has warned.
Average quoted car insurance premiums have risen by just £1 over the last three months of 2014, according to the latest benchmark AA British Insurance Premium Index.
The index’s average Shoparound quote (which uses direct, broker and comparison site prices) for an annual comprehensive car insurance policy increased by 0.2% to £540.26 – up from £539.19.
This compares with a rise of 1.2% over the previous quarter, which was the first increase in three years. Premiums are 10% cheaper than this time last year.
However, Janet Connor, managing director of AA Insurance, expects insurers to push for premium increases over the next year.
She says: “Some insurers may have lost business by increasing premiums, leading to a ‘year-end sale’ to boost market share, so car insurance is still very good value.
“Car insurance is extremely competitive. Nevertheless the underlying trend is upward, although I think premiums will struggle to rise past 10% by the end of the year.”
Ms Connor suggests that premium falls over the past couple of years have had more to do with competitive pressure than benefit brought by the Ministry of Justice in its Laspo (Legal Aid, Sentencing and Punishment of Offenders) reforms, aimed at cutting fraudulent and exaggerated personal injury claims.
She says: “The facts speak for themselves. The number of personal injury claims is now higher than before the Justice Ministry reforms were introduced. Over the 12 months ending March 2014, the average number of claims was 66,000 per month. They now stand at an average of nearly 71,000 per month.
“As a result, current premiums are simply unsustainable,” she says.
The second phase of the Justice Ministry’s whiplash reforms aims to protect honest claimants by outlawing personal injury claims being settled without a medical assessment taking place.
The AA welcomes the new medical reporting accreditation system, which it says should ensure claimants receive a high standard of service from an independently allocated medical reporting expert.
It argues that all circumstances of a collision should be taken into account, such as vehicle damage, to confirm the likelihood of injury.
“This would put off those looking for an easy cash win but would not discourage those with a genuine injury,” says Ms Connor.
“In addition, the AA has consistently called on the government to prohibit whiplash injury claims for low-speed collisions as well as settling justified claims with rehabilitation rather than cash.”
Ms Connor also believes that changes proposed by the Competition and Markets Authority (CMA) on competitive pricing between insurers and price comparison sites has led to additional discounting and ‘special offers’ by some insurers.
But she adds: “Changes proposed by the CMA could make it more difficult for customers to find the most competitive premium: they’ll have to check different comparison sites as well as direct insurers to find the best deals.”
Matt Oliver, car insurance spokesman for GoCompare.com, says : “The news from the AA that average quoted car insurance premiums have risen by just £1 will be welcomed by drivers but they will almost certainly be disappointed if they expect their own renewal price to change so little.
“As the AA points out, the car insurance market is extremely competitive and it’s most likely this that has led to premiums levelling out rather than insurers cutting claims costs and passing on the benefit.
“What customers need to bear in mind is that an insurer which has offered a great deal to win your business will probably want to make some money from you the following year, and then a bit more the year after that.
“It’s no secret that loyal customers subsidise the best deals for new customers so you can either be on the receiving end of the subsidies by switching regularly, or you can give out the subsidies by staying loyal to one insurer, it’s as simple as that.
“Our own survey has found that 34% of drivers have not switched their car insurer in the last three years and 17% have never switched. Research shows that just over half of consumers could save up to £234by switching car insurer.”