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Car insurance premiums stay ‘flat’

Car insurance premiums continue to show little movement, according to the AA's latest quarterly British Insurance Premium Index.

Although car premiums fell slightly over the first quarter of 2005, there are signs that the price cutting of the past two years may be coming to an end.

"These results underline our expectations," says Kevin Sinclair, director of AA Insurance. "Generally benign weather and low crime levels help to keep both motor premiums in check.

"And while these results are, of course, good news for customers, we need to be cautious that a return to more normal conditions doesn't lead to a sudden reverse of the current trend."

The average comprehensive car insurance premium quoted fell by £5, or 0.7%, to £750 over the past quarter, contributing to a fall of £25 (3.3%), over the past year. The average quotation for third party, fire and theft cover also fell but by just 0.2%.

The average of the three lowest premiums in the index remained virtually static following some significant falls over the past year, slightly narrowing the gap between the highest and lowest premiums.

"This suggests that the heavy discounting we have seen over the past couple of years may be coming to an end and that premiums may have bottomed out," says Sinclair.

But claims inflation - driven by the escalating cost of repairing accident-damaged cars - continues to rise by between 1 and 2% per quarter, Sinclair points out. "That might not sound much but with low inflation, and thus low investment income, insurance companies won't be able to keep premiums at their current low levels indefinitely.

"But what we need to avoid at all costs is a sudden leap in premiums which has happened in the past - that would not be in the interests of either customers or the industry.”

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