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Small car sales soar as premiums go up

Motor insurance costs have risen strongly in the first quarter, according to the AA's British Insurance Premium Index.

The continuing rise is likely to result in more car buyers downsizing into less expensive cars and greater value being placed on finance packages which include free insurance as an incentive. Companies such as Citroen, Renault and Peugeot have seen small car sales soar on the back of free insurance offers.

Kerry Richardson, AA Insurance Services managing director, said: “Motor insurance premiums continue to rise. Based on the current levels of inflation, the average cost of comprehensive insurance will have risen by nearly 18% over the past 12 months. Third party insurance will have risen by nearly 25%.”

Ms Richardson said increases in the cost of third party cover reflected the fact this was a shrinking market and customers tended to be higher risk motorists. Increases had been applied across the country and in all risk sectors. Glass's Guide said higher insurance costs was one of the driving factors behind the boom in small car sales but warned more and more buyers were demanding large car features.

Jeff Patterson, Glass's car editor, said: “When downsizing, buyers look for the same level of comfort they had in the larger car. The market wants high specification levels and budget-spec small cars don't perform well.”

Meanwhile, financial analysts Standard & Poor warned at least three motor insurers operating in the UK are in danger of collapse due to low margins and poor financial strength. The company said a repetition of the closure of Drake Insurance, which left 200,000 owners uninsured, was possible because of fierce competition in the insurance market.

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