Car insurance premiums: Are they really going down?
Friday, 04 November 2011 11:13
By Kate Saines
The grand unveiling of financial data of any kind very rarely provides us with good news – at least not in these tumultuous times.
But when latest figures from the AA British Insurance Premium Index were revealed last month it seemed there was at last something to celebrate.
Namely, the end of record-breaking car insurance premium rises.
Apparently, the average premiums had fallen by 0.3 per cent, or £2, over the three months ending September 30th according to the AA’s Shoparound index, which identifies the average of the cheapest three quotes from a range of insurers.
Okay, so £2 might not be a life-changing amount – but the fact premiums have reverted from their seemingly perpetual rise is good news, surely?
Well, not if you are an insurance expert. Because according to the ‘ones-in-the-know’ in the insurance industry it’s not time to start getting too excited.
Simon Douglas, director of AA Insurance, described this price dip as a “respite” and one which is likely to be short lived.
He explained the past two years had seen the biggest ever rises because insurers were battling to close an ever-widening gap between premium income and claims costs.
“Something had to give,” he explained. “But the gap has now closed sufficiently to allow insurers to start pricing more competitively again.”
But the problem is, explained Mr Douglas, that there are inflationary pressures for insurers.
“Premiums are likely to continue rising next year, but at a much more modest rate. I would be concerned if they do start falling because after time it could lead to a repeat of the last two years’ sharp premium inflation.”
So expect to see premiums go up again as we enter 2012.
But if you are not due to renew your policy until January, it doesn’t mean you’ll miss out on reduced prices.
Scott Kelly, head of car insurance at price comparison website Gocompare.com, said the £2 decrease is unlikely to make a difference for drivers renewing their premiums at the moment.
This is because this tiny reduction is unlikely to make a difference to premiums over the course of the year.
“Anyone renewing now,” he explained, “is likely to see a double-digit increase since they took out a policy a year ago, so any drivers who are expecting to see their premiums come down or even stay the same are almost certainly going to be disappointed.”
He suggests if you really want to reduce your premium, to make sure you shop around for the cheapest quote at renewal time instead of just rolling over your current insurance policy for another year.
You will usually be able to find a more competitive quote.
Mr Kelly added: “Drivers need to compare the competition to find the right insurer for their current circumstances.
“The chances are there will be a different set of insurance providers queuing up to take their business than there were 12 months ago.”
Even if you are keen to remain with your current insurer, you may be able to persuade them to reduce your premium if you tell them you can get a cheaper quote elsewhere – don’t be afraid to barter.
Use the Myfinances.co.uk comparison tables to find the best deal on car insurance.
Young Drivers
The under 25s are, of course, the ones who really suffer when it comes to car insurance premiums. And 2011 has been no different.
Data compiled by the Confused.com and Towers Watson price index revealed a 17 to 20 year old male is currently paying, on average, £4,006 per year for comprehensive car insurance cover.
The AA’s Shoparound Index shows premiums for young drivers have shown signs of falling – by over five per cent in the previous quarter. But most recent data shows they have risen again slightly.
This is despite Department for Transport information showing the number the crashes involving death and serious injury amongst young drivers is falling.
Simon Douglas explained the number of crashes involving this age group still remained significantly higher than other age groups.
He added: “Education, changes to the driving test and development of new black box ‘pay by performance’ insurance solutions should all help young people start their driving careers responsibly and safely.
“But there will need to be strong evidence these reduce the number of serious crashes experienced by young drivers before premiums fall much further for them.”
In the meantime insurers suggest young drivers adopt as many money-saving techniques as possible if they want to lower their premiums.
And buying the right car could be a good start, according to Confused.com which has just researched the five cheapest and most expensive cars to insure for 17 to 20 year olds.
If you are in this age group you’ll do well to purchase a Ford KA2 or Ford KA which cost £1,651 and £1,781 respectively per year to insure on average.
The Peugeot 107 and Daewoo Matiz are the next cheapest, setting young drivers back £1,994 and £2,258 respectively per year. The Mini One will cost £2,268 to insure per year, says Confused.com.
Avoid Honda Civics, Volkswagen Golfs and Vauxhall Astras, however, as you’ll be looking at premiums of as much as £4,515 per year. Again, it is crucial young drivers do their research when it comes to insurance.
Gareth Kloet, head of car insurance at Confused.com, said: “Once the car has been found drivers should shop around for cover as premiums can vary greatly between providers. A comparison site is a great way to do this.”
The good news
Whilst it seems the car insurance premium fall is just a blip, the good news is the rises expected to follow will be slower.
And not only this, but we should take some hope from the fact there are certain plans afoot to introduce policies which could help lower car insurance premiums.
Take the government announcement in October it was planning to ban ‘referral fees’. You may have heard of these fees in connection to organisations which have been passing on details of drivers to claims management firms, without drivers’ knowledge, in order to make money from insurance claims.
The Ministry of Justice announced plans to reform these fees, a process which will prevent many claims from being made.
Simon Douglas said: “We welcome this and provided all of the recommendations, including banning of referral fees, put before parliament become law it will help reduce car insurance industry claims costs, particularly for whiplash claims and thus reduce pressure on premiums.”
There is also the introduction of continuous insurance enforcement (CIE), an initiative to clamp down on uninsured driving, and the launch in 2012 of a dedicated policy insurance fraud unit.
Soon insurance companies will also be able to access DVLA customer data, a move which is expected to help control fraudulent claims.
All these things are set to crack down on insurance fraud, a move which will eventually – hopefully – help lower our premiums.
In the meantime, however, it would seem the only way we can get cheaper car insurance is to take matters into our own hands.
Use the Myfinances.co.uk comparison tables to find the best deal on car insurance.
Find out how: 15 ways to cut the cost of car insurance
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