Motor insurance premiums rise at record rate

The cost of car insurance is rising at its fastest rate on record with young drivers taking the brunt of the increases, according to new research.

Market analysis by AA Insurance has found that motorists are paying about £100 more for a comprehensive policy bought today than in October 2008, as fraud and personal injury claims drive up the costs of cover.

The rise in premium costs, by 14 per cent to £821, is the biggest year-on-year rise recorded by the AA since it started tracking quarterly movements in car and home insurance premiums in 1994. In the three months to the end of September, premiums rose 5.5 per cent.

Young drivers fared far worse over the quarter with premiums for Third Party Fire and Theft policies (TPFT), typically bought by young drivers over costlier comprehensive plans, rising 9.3 per cent in the period or 17.6 per cent year-on-year.

Premium inflation was widespread across the industry, according to the AA, with nearly 90 per cent of the 90 insurers and brokers sampled increasing their premiums by more than £5 over the quarter.

The AA said car insurers have been hit by rising costs, a depletion in their reserves for paying claims and a fall in investment income, largely because of the recession.

“Last year one industry commentator said that premiums must increase by at least 20 per cent if the car insurance sector was to return to profitability,” says Simon Douglas, director of AA Insurance. “At the time I thought this unlikely but it looks as if that prophecy might be fulfilled.”

With the average cost of a TPFT for a young driver at about £1,050, the AA warned that more younger drivers might be pushed to drive without cover.

“I’m worried that premiums are fast becoming unaffordable for young drivers,” says Douglas.

“In addition, young drivers who shop around on the internet for their cover are least likely to remain with their first provider so companies are less likely to offer introductory discounts.”

The AA also found that the cost of an annual home buildings insurance policy had risen for the sixth consecutive quarter by 1.6 per cent to an average of £227.

Earlier this week it was claimed that insurers were recouping costs for increased fraud claims by hiking up the compulsory excesses charge.

Uswitch.com, the price comparison website, said that these excess payments had increased by 32 per cent in the last year from £129 to £170, with 85 per cent of drivers paying this charge if they had an accident.

The AA said this week that it had seen a 30 per cent rise in the number of claims refused because of false information.