Car insurance premiums reach new peak
It’s never been more expensive to insure your car, according to the latest data from the Association of British Insurers (ABI).
The ABI says motor insurance premiums rose by more than five times the rate of inflation in 2016 and reached a record peak in the final quarter of the year.
This brings the average price of comprehensive car insurance to £462 a year - £19 more a year than the previous peak of £443 in the third quarter of 2012.
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The fourth quarter figures for 2016 are also 4.9% up on the previous quarter, which is the biggest quarterly jump on record, adding £22 to an annual premium.
The ABI says that the average premium in 2016 was 9.3% up on 2015.
What’s driving up insurance costs?
A number of factors have been blamed for driving up the cost of car insurance.
Since the July 2015 Budget, Insurance Premium Tax (IPT) has been increased three times. By the time the latest hike comes into force on 1 June, the rate will have doubled from 6% to 12%.
Personal injury claims – including claims for whiplash – also continue to impact on cost. In quarter three of 2016 the average bodily injury claim was £10,674 – a 2.3% increase over the year.
The cost of repairing cars is rising too. Over the last three years the average repair bill has risen by 32% bringing it to £1,678 in the third quarter of last year. The ABI blames the increases on increasingly complex car technology and the rising cost of spare parts following falls to sterling.
Commenting on the findings Rob Cummings, assistant director at the ABI says: “These continue to be tough times for honest motorists. They are bearing the brunt of a cocktail of rising costs associated with increasing whiplash style claims, rising repair bills and a higher rate of Insurance Premium Tax.”
He also expressed concern that if the Ministry of Justice acts to reduce the discount rate applied to compensation payments (the mechanism applied by courts to reduce larger payments to account for future investment returns) – yet more pressure could be piled onto insurers and subsequently the premiums that motorists are forced to pay.
He adds: “While we support the government’s further reforms to tackle lower value whiplash costs, it must not give with one hand and take away with the other. The sudden decision to review the discount rate has the potential to turn a drama into a crisis, with a significant cut throwing fuel on the fire in terms of premiums.
“Insurers are open to a proper dialogue on how to reform the system and urge the Lord Chancellor to engage with the industry about setting a rate that is fair for both claimants and customers.“
An increase in the general level of prices that persists over a period of time. The inflation rate is a measure of the average change over a period, usually 12 months. If inflation is up 4%, this means the price of products and services is 4% higher than a year earlier, requiring we spend and extra 4% to buy the same things we bought 12 months ago and that any savings and investments must generate 4% (after any taxes) to keep pace with inflation. Since 2003, the Bank of England has used the consumer prices index (CPI) as its official measure of inflation (see also retail prices index).
Association of British Insurers
Established in 1985, the ABI is the trade body for UK insurance companies. It has more than 400 member companies that provide around 90% of domestic insurance services sold in the UK. The ABI speaks out on issues of common interest and acts as an advocate for high standards of customer service in the insurance industry. The ABI is funded by the subscriptions of member companies.