Car insurance premiums rise by 16.3% in a year, says AA

Tax, excess whiplash claims and price comparison websites are blamed for a sizeable hike in premiums

Car insurance premiums have risen by almost £82 on average over the past year, with the blame falling on increased taxes, excess whiplash claims and price comparison websites.

The AA’s latest British Insurance Premium Index shows that typical premium quotes have risen by 3.7% over the last quarter and 16.3% over the past year. The index uses a pool of customers nationwide to obtain quotes to track prices throughout the year.

Michael Lloyd, the AA’s director of insurance, attributed the rise to three main causes. Two increases in Insurance Premium Tax (IPT) in the past year have added around £18 to the average premium, prompting Lloyd to urge chancellor Philip Hammond to “keep his hands off” when he makes his autumn statement on 23 November.

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“We are witnessing sustained price increases once again, which is bad news for drivers,” Lloyd said. “Motor insurance is a mandatory requirement and there is absolutely no justification for further hikes in IPT in the autumn statement. Coupled with predictive price increases, an additional tax burden would simply add to the growing number of uninsured drivers.”

Lloyd also highlighted the continuing costs of the whiplash “epidemic”, as well as the impact of price comparison websites on the insurance industry.

“In August, almost 70,000 small injury claims (of up to £25,000) were made, and more than 839,000 over 12 months, of which around 750,000 were for whiplash,” he said. “The whiplash epidemic has dogged the British motor insurance industry for a decade and continues to do so.

“Drivers are still being pressured into making claims for often minor collisions that they might have forgotten about. This is pushing up claims costs because insurers can’t prove that an injury wasn’t suffered.”

Mr Lloyd added that he recognised that whiplash can be a serious and debilitating condition but said: “The activities of claims firms make life more difficult for those with a genuine injury.”

Ministry of Justice reforms designed to curb claims firms' activities appear to have ground to a halt – a move that Lloyd reacted to with “despair”. The Ministry announced on 13 October that the reforms were being shelved but not abandoned.

A spokeswoman for the Association of British Insurers concurred with the AA’s position on IPT. The ABI released its own report earlier this month on how to tackle rising insurance costs. She said: “We also believe that delays with proposed government reforms to personal injury claims are costing motorists £3 million a day, based on the Government’s own calculations. Our report shows that personal injury claims, which make up 9% of total motor claims by number, actually account for 37% of insurers’ costs.”

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Of price comparison websites, Michael Lloyd said such sites encourage shopping only on price, not by the amount of cover of each product.

“There’s little incentive for insurers to offer low, loss-making introductory quotes on price comparison sites, because not only do they pay a fixed introductory fee that could be a substantial portion of the premium, but there is little likelihood that such customers will remain,” he said.

“Customers don’t necessarily recognise that a low initial premium is a first-year introductory discount, so they go elsewhere. Inevitably, this will tend to push those initial premiums up and perhaps offer greater scope for insurers to reward loyalty.”

James Dalton, the ABI’s director of general insurance policy, said: “Every motorist wants competitively priced insurance that meets their needs. Consumers benefit from a very competitive insurance market but insurers are facing the perfect storm of rising costs from personal injury claims, repair bills and Insurance Premium Tax.”

Phill Tromans