Friday, 13 January 2017

Car insurance costs continue to accelerate

The cost of motoring continues to rise as the Confused.com car insurance price index Q4 2016 reveals a year-on-year price increase of 14%

Car insurance prices are continuing their upward trend, putting pressure on drivers' already stretched wallets. That's according to the latest Confused.com car insurance price index powered by Willis Towers Watson. Over the last 12 months, prices have increased by 14% - equivalent to £95 - on average. This means a driver can now expect to pay £767 for a typical comprehensive car insurance policy, the costliest amount since mid-2012 when the average premium stood at £797.

Quarter-on-quarter price rises also show no sign of reversing, rising by four per cent in Q4 2016, equating to an additional £30 on premiums over the last three months alone. The rise follows two consecutive quarterly increases in the cost of a typical car insurance policy.

Coupled with hikes in insurance premium tax, which is up to 10% from six per cent this time last year1, and it's likely that many motorists will be feeling the pinch when it comes to the cost of owning and running a car.

Looking at the price index in more depth, it's clear that some motorists have been hit harder than others. In particular, older drivers continue to see the greatest increases. Comprehensive premiums have never been higher for many drivers in their sixties and seventies – those aged 62 (£481), 63 (£494), 64 (£450), 68 (£515), and 71+ (£495), for example, are all experiencing their highest premiums ever. And at 10%, drivers aged 71+ have seen their biggest ever quarterly increase.

Meanwhile, despite teenage drivers only paying between 56% and 75% of their maximum ever premiums, the cost of car insurance for younger drivers remains, by comparison, eye-wateringly high. Average premiums for people aged 26 and under are all over £1,000. And, after 18 months of 18-year-old drivers typically paying the highest premiums, it's the nation's youngest drivers, those aged 17, who now pay the most (£2,112). Motorists aged 60 and over, by contrast, can still typically expect to pay less than £500 (the exception being those aged 68 who pay £515 on average).

Both male and female drivers have seen their premiums rise substantially over the last 12 months. However, males have seen prices accelerate more than their female counterparts, climbing by 15% (+£104 year-on-year) and 13% (+£84 year-on-year) respectively. Meanwhile, the fourth quarter of 2016 has seen a further jump of four per cent for both sexes from the previous three-month period. As a result, the average man's premium now stands at £812, while for women it is £711.

Even though EU rules have banned insurers from taking gender in to account when calculating premiums since December 2012, the gap in price between men and women's car insurance continues to widen. There is now a difference of £101 between the sexes in Q4 2016, the first time the £100 barrier has been broken since the EU rules came into force. By comparison, only two years ago (Q4 2014) the gender price divide was almost half as wide at just £51 and as low as £27 immediately after the rules came into place, with men still paying more on average.

Looking across the UK, increases in premiums can be felt in most areas, with no region escaping an annual price hike. In particular, motorists in Scotland have faced the highest percentage rises over the past 12 months. Those in the East & North East and the Highlands & Islands regions of Scotland, for example, have seen the average cost of their car insurance go up by 20% year-on-year to £563 and £589 respectively – the highest of any UK region. Drivers in the Scottish Borders region haven't fared much better. They've seen a 19% annual price hike, although they can take some comfort in the fact that at £531 they still typically pay the least of any UK region for car insurance.

Meanwhile, despite Scottish drivers generally seeing higher annual percentage rises, motorists in the English capital still tend to pay the most for car insurance of all UK regions. And people in the Inner London region pay the most of all - their average annual fully comprehensive policy stands at £1,237 in Q4 2016. In real-terms this is up £152 year-on-year, the largest monetary increase of any UK region too. Only motorists in Northern Ireland saw anything close to this, where the average cost of a fully comprehensive car insurance policy has risen by £134 over the past twelve months, the second largest actual increase of all UK regions.

Across the UK's other capital cities, drivers in Cardiff, Wales face an average price of £714, up 14% from the same time last year. Meanwhile, those in the Scottish capital of Edinburgh can expect to pay around half that of a London motorist - £558, up 12% from the previous 12 months.

While the price index tends to focus on fully comprehensive car insurance policies, third party fire & theft (TPFT) premiums have increased too and have, in fact, never been higher. The average TPFT policy now stands at £1,311, up 15% year-on-year and five per cent quarter-on-quarter.

Amanda Stretton, motoring editor at Confused.com says, 'Drivers are now paying £95 more on average for an annual comprehensive car insurance policy than they did during the same period in 2015. With the average premium standing at £767, the cost of car insurance hasn't been this high for over four and half years. What's more, as prices continue to climb, it seems only a matter of time before we're back at the £858 peak we saw in 2011.

'And it's not just the price of fully comprehensive policies that have risen over the past 12 months, with the typical third party fire & theft (TPFT) premium at its highest ever cost too. With an average TPFT policy costing £1,311, drivers interested in this level of cover may want to get quotes for fully comprehensive policies too as in some cases it may work out cheaper.'

Commenting on the Confused.com report, James Dalton, director of general insurance policy at the Association of British Insurers, said, 'Motor insurance remains a highly competitive market, with motorists shopping around for the best deals. But pressure is growing on premiums. Cold callers and ambulance-chasing lawyers are still finding ways to exploit the system, with government data suggesting a five per cent increase in whiplash style claims. This is driving up costs for honest motorists. In addition, the Government has doubled Insurance Premium Tax in just over a year, and repair bills are going up as cars get more sophisticated. So while insurers are doing all they can to control costs, these pressures show how important it is that the Government's latest proposals to tackle low value whiplash style claims are implemented fully and as quickly as possible, and that there is no further rise in Insurance Premium Tax.'