The cost of car insurance rose at nearly seven times the rate of inflation in 2010, adding hundreds of pounds to an average policy with young drivers bearing even steeper increases, according to new research.
New data from the Automobile Association or AA, the motor recovery service and insurance broker, said the average cost of an annual comprehensive policy rose by 33 per cent or £210 to £843 in 2010. This compares with a 4.8 per cent rise in the retail prices index in the year to December 2010.
The AA’s British Insurance Premium Index found that over the last three months of 2010, car insurance premiums jumped by 6.4 per cent adding £51 to the cost that drivers typically pay for an annual comprehensive car insurance policy.
Younger drivers, who are seen as more of a risk by insurers, bore the brunt of the increases with the cost of a typical policy skyrocketing by nearly 60 per cent over the year.
According to the AA, 17-22 year olds have seen premiums rise by 15.1 -per cent over the final quarter of last year and by 58.3 per cent over the year, to £2,251.
Third party, fire and theft (TPFT) insurance, most commonly bought by young drivers for old cars and traditionally an affordable alternative to comprehensive, is being offered by fewer and fewer companies and can now be more costly than comprehensive cover. It rose by 27 per cent over the quarter, and 72 per cent over the year, to £1,390.
“There has been no let-up in premium increases as insurers struggle against losses from 2009, when for every £100 taken in premiums, £123 was being paid out in claims,” says Simon Douglas, director of AA Insurance.
“This has led to the biggest annual premium increases we have seen since the AA Index began in 1994.”
In spite of the rises, the AA believes there may be some respite for motorists with the “beginning of a slow-down in price rises.”
The steep and continuing rises in the cost of cover has been blamed on fraudulent claims by motorists, estimated to add £80 to the cost of each policy.
“A sharp growth in the number of accident management and personal injury claim firms has helped to develop a hard-sell system in Britain that encourages people to claim, even if they have not suffered an injury,” says Douglas.
The Association of British Insurers estimates that there are 108 fraudulent motor insurance claims amounting to a combined value of £1.12million, detected every day.
However, the rises come as the Office of Fair Trading took action against seven insurers following price fixing concerns.
Insurers Ageas Insurance Limited (formally Fortis Insurance Limited), Aviva plc, AXA Insurance UK plc, Liverpool Victoria Friendly Society, RBS Insurance Group Limited, Royal Sun Alliance and Zurich Insurance plc, and the IT software and service providers Experian Limited and SSP Limited have all offered formal commitments to the OFT.
This follows an OFT investigation which identified an increased risk of price coordination among motor insurers using a specialist market analysis tool by Experian called Whatif? Private Motor.
The tool enabled insurers to access information about their competitors future pricing intentions. However, the OFT did not conduct an official investigation into how the insurers were using the data obtained from use of the tool.