Car insurance premiums are continuing to rise, with latest figures showing an increase in the AA’s ‘shoparound’* quoted premium up 3.7% in the three months to the end of September.

The AA’s latest British Insurance Premium Index shows the average premium for a comprehensive car insurance policy has increased by more than £20, to £585.84 in the period.

Over 12 months, the average quoted premium has risen by 16.3%, adding almost £82 to a typical motor policy.

“We are witnessing sustained price increases once again which is bad news for drivers,” said Michael Lloyd, the AA’s director of insurance.

The AA’s Index uses the same nationwide representative pool of ‘customers’ to obtain quotes from the insurance market, including price comparison sites to achieve accurate quarterly price tracking.

“I can’t see an immediate end to the current upward trend.”

Premium movements since 2012: comprehensive shoparound

'Hands off' 

Two increases in Insurance Premium Tax (IPT) over the year have added about £18 to the average car insurance premium, and Lloyd is urging the Chancellor to ‘keep his hands off’ in the Autumn Statement. 

“Motor insurance is a mandatory requirement and there is absolutely no justification for further hikes in IPT in the Autumn Statement.

“Coupled with predicted price increases, any additional tax burden would simply add to the growing number of uninsured drivers.”

Whiplash epidemic

Lloyd also blames the continuing whiplash epidemic and the cost to insurers of price comparison site business (currently the subject of a Competition & Markets Authority (CMA) enquiry) as factors contributing to upward premium pressure.

“In August almost 70,000 small injury claims (of up to £25,000) were made; ** and more than 839,000 over 12 months, of which around 750,000 were for whiplash.

“The whiplash epidemic has dogged the British motor insurance industry for a decade and continues to do so. 

“Drivers are still being pressured into making claims for often minor collisions they might have forgotten about.  This is pushing up claims costs, because insurers can’t prove that an injury wasn’t suffered. 

“I do recognise that whiplash can be a serious and debilitating condition.  But the activities of claim firms makes life more difficult for those with a genuine injury.”

Dangers of shopping on price alone

Lloyd believes that drivers are being poorly served by the structure of a market that encourages people to shop only on price, often disregarding or being unaware of the level of cover offered.

“There’s little incentive for insurers to offer low, loss-making introductory quotes on price comparison sites because not only do they pay a fixed introductory fee that could be a substantial proportion of the premium, but there is little likelihood that such customers will remain.

“Customers don’t necessarily recognise that a low initial premium is a first-year introductory discount so they go elsewhere.  Inevitably, this will tend to push those initial premiums up and perhaps offer greater scope for insurers to reward loyalty.”

* The 'shoparound' figures are an average of the five cheapest premiums for each risk