Drivers face insurance cost hikes
Updated on 07 January 2009
Motorists have been warned to brace themselves for double-digit price hikes in car insurance premiums this year.
Broker AA Insurance estimates premiums will rise by between 10% and 11% during 2009 as insurers struggle to keep up with the rising cost of fraud and personal injury claims.
Some insurance companies claim premiums could soar by as much as 20%, and while AA Insurance said it did not expect to see a rise of this level, it added that a 20% jump would be needed if the industry was to make an underwriting profit.
Insurers currently pay out around £105 in costs and claims for every £100 of premiums they take in. In the past this mis-match between premiums and costs has not been a problem as the industry has been able to recoup the difference through investing premiums in the stock market.
But in the current volatile investment climate they are no longer able to make up the shortfall in this way. The insurance industry has not made an underwriting profit for around 20 years, with premium increases previously being kept down by fierce competition due to the entry of internet providers into the market and price comparison websites.
But AA Insurance said the average cost of the most competitive comprehensive motor insurance premiums had risen by 8.7% during the year to the end of September to average £486.45.
Figures are not yet available for the final quarter of the year, but it is thought premiums jumped by around 3% during the three months to the end of December alone.
The problem for the industry is that claims costs have increased steeply in recent years, particularly personal injury claims, due to rising medical costs and the increasing number of "no win, no fee" claims firms.
Ian Crowder, of AA Insurance, said: "Some commentators suggest a rise of 20% over the next year and, certainly, a rise of that magnitude will be necessary if the insurance industry is to achieve an underwriting profit."
Industry figures show that fraud costs increased by around 17% during the past year, adding around £30 to the cost of all insurance policies.
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