Friday, 23 September 2011

The Soaring Cost of Car Insurance


If you're a motorist you may prefer not to read this. Car insurance premiums have soared throughout the past couple of years that can only benefit insurers with hefty profits. The Admiral Insurance group, owners of Confused.com, Elephant.co.uk and Diamond, have recently reported a 27% increase in pre-tax profits in the first half of 2011 due to a small part of rising car insurance premiums. Premiums helped the insurance firm achieve all new record results, with turnover rocketing to a whopping 53% to £1.1 billion for the starting six months. With Admiral’s performance the company's chief executive, Henry Engelhardt, could hardly hide his happiness, stating: "it wasn't so long ago that we were pleased to report over £1 billion turnover for a full year."
That delighted that he has chosen to give each and every member of staff £1,500 worth of free shares in the company.

Fuming Motorists

While the chief executive of Admiral and its staff are extremely impressed, anyone in the public who has tried to renew their car insurance, or in an even worse situation, has just purchased their first motor insurance policy recently, might see this and other companies increase in profits a kick in the teeth. You don’t have to be an economist to work out that the cost of insuring a car has climbed at an alarming rate over the past couple of years. Information from Confused.com's own index, the average cost of a comprehensive car insurance policy is now £858, increasing by £170 on top of last year. And those prices show no sign of settling: in the second quarter of this year, prices increased yet again by an average of 25% compared to the same period in 2010.

Not just Young Drivers Affected by This

All motorists are affected by this price increase, from new road users who will expect to 'pay a premium' on their premiums, to drivers who have earnt no claims and expect to see their annual premium fall year on year. Passing your driving test today at 17 and you can expect to pay almost £3,000 a year, on average. Only 18 months ago they would have been expected to pay less than two-thirds that sum. But young drivers are not the only ones to suffer - almost all drivers have seen huge premium rises. Perhaps even more bizarre, a woman aged around 40 and 49 will have experienced her annual premium rise by an explosive 40% to around £595 a year over the same period. The average annual cost of running a car is now around £3,000 a year, 21% higher than 12months ago. The big question is why are the car drivers, again still the ones getting the short end of the stick?

Personal Injury Claims and Uninsured Drivers

Insurance are blaming the massive hike in premiums directly at uninsured drivers, fraudulent insurance claims and the rapid rise of personal injury claimants. Vital statistics do tend to back this evidence up. While the Department for Transport statistics have shown the number of accidents involving car drivers has fallen by 10% in the past three years, the number of claims of an injury sustained in a car accident has increased around 43%. Director of AA Insurance Simon Douglas stated a corrupt element within the motoring community is definitely to blame, at least some parts, for the increase in insurance premiums across the board. "Beneath the waterline there is a serious culture of insurance crime that must be stopped." He also claims that there are false, exaggerated personal injury claims that have also played a key role in adding to the woes of anyone looking for a competitive car insurance premium. "It's vital that the industry strongly gets the message over that there will be no hiding place for those who attempt to rip off their insurance company." New figures have been released from the Association of British Insurers (ABI), detected fraud amounts to a whopping £17.5 million per week - an increase of 9% over last year. Many insurers believe this is just only the start: accountancy firm Deloitte calculated that motor insurer’s lost £2 billion industry-wide as claims outdid income from car insurance premiums. Nick Starling from ABI says initiatives to reduce the activities of the more wayward firms who tout for claimants to come forward even if they have been injured or not, are a necessity. "Putting the brake on ambulance-chasing lawyers and claims management firms cannot come a moment too soon. Motorists have rightly had enough of paying for excessive legal costs, which add an extra 10% to the cost of motor insurance."

The Uninsured adding on top of the High Prices

Uninsured drivers add to the honest motorist's woes. In 2010 the police confiscated more than 150,000 cars that were being used without valid insurance. Tougher measures are being put in place to reduce such activity including the establishment of a dedicated police fraud unit and a new industry-wide fraud database with insurers being given full access to the database. Continuous Insurance Enforcement (CIE) law, which makes it a criminal offence to keep an uninsured vehicle, unless it has a Statutory Off Road Notification (SORN) or is exempt, has been welcomed by The British Insurance Brokers' Association (BIBA). It’s a giant step as it makes it an offence to keep an uninsured car, let alone the major offence of driving one without insurance. Clamping down on uninsured drivers and car owners should help drive costs down; with figures indicating honest motorists pay an extra £500 million in premiums because of uninsured drivers. Under a new legislation, warning letters are posted to registered keepers identified as having an uninsured vehicle. Any prosecutions made under the CIE are in added on to the existing offence of driving without valid insurance, and are planned to be an added deterrent for errant car owners. Graeme Trudgill from BIBA claims it is "a big step forward for the industry".

Will We Ever See premiums fall again?

If all the above statements the insurance giants have promised are followed, we should see premiums start to decrease once again. And small signs of that may already be evidence of it working. The AA's latest Insurance Premium Index stated that annual premiums for all of the UK’s drivers increased by 'just' 3.6% in the second quarter of this year 2011 – making it the lowest quarterly rise in the past 18 months. This is something trending across the board with insurers reporting the motor insurance market may now be "flattening out". Although, anyone needing to renew their annual policy in the next few months will still probably be  faced with a substantial climb in their renewal premium, seeing as though prices have risen so rapidly over the preceding months. The message is clear: shopping around will get you the chance of finding the best deal. Motorists are able to make significant savings on their premiums by doing so - even if savings still don't quite bring the price you pay in line with last year's premium this time.