Car insurance costs rocket

Thursday, 28 January 2010 11:59

By myfinances.co.uk staff

Personal injury claims and fraud are responsible for a dramatic rise in the cost of car insurance over the last twelve months the AA has said.

It claims a compensation culture is becoming "increasingly embedded" in Britain with the result being that comprehensive car insurance has risen 18.7% in the last year to over £1,000, the biggest increase since the AA began tracking the cost of premiums in 1994.

Average comprehensive cover increased by a whopping 7.2 per cent in the final three months of 2009 alone, the AA's British Insurance Premium Index revealed.

And even those shopping around for the cheapest deals were paying 11.3% more for car insurance at an average of £613.

Third party, fire and theft premiums also rose significantly - by 8.9 per cent in the final quarter of the year, pushing it up to £1,252. The cheapest offer was £788, up 13.9%.

Simon Douglas, director of AA Insurance, said insurers had struggled to deal with disappearing revenue while at the same time having to cope with increaseing costs brought on by a rise in personal injury claims.

He said: "Many people seem willing to pursue claims for even minor injuries, such as mild whiplash pain that in the past they would not have bothered claiming for."

"This is encouraged by personal injury claims lawyers whose marketing urges people to make claims and whose costs, as well as compensation for the claim, are met by the third party insurer.

"This is becoming increasingly embedded in British culture and, ultimately, feeds back to premiums."

He added fraud was also contributing to the rising costs, meaning an extra £2 billion a year was being passed onto customers in the form of increased premiums.

Cheap deals had all but dried up, Mr Douglas said, as fewer attractive introductory offers were being made by insurers as a result of dwindling customer loyalty.

Predictably the young were hardest hit. The typical third party, fire and theft insurance policy - taken out by young people who are usually unable to afford comprehensive cover - rose by 23.8% on average.

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