The average cost of motor insurance has increased by £24 in the past quarter according to the latest Premium Drivers report by Compare The Market.
The average car insurance premium in Q1 2020 (December – February) significantly increased over the last quarter and now stands at £755 – an increase of £24 compared to the previous quarter’s £730. Premiums have now increased by £47 since Q3 2019, when they reached the lowest level seen in three years, at £708.
This marks the third successive rise in average premiums, as they have been increasing steadily since Q3 2019. The last time average premiums were that low was Q3 2016, when they sunk to £697.
While premiums have historically fluctuated throughout the year, average premiums remain lower than the same time last year. In Q1 2019, average premiums were £736, with premiums increasing by £19 year on year. In addition, the cheapest average premiums available on the market have increased by £10 on the quarter to £627, and have also increased by £8 year on year.
Premiums remain a lot higher than when Premium Drivers records began in September 2012. The average premium stood at £559 in the last quarter of 2012 before rising to a peak of £758 in Q4 2017 – a £200 difference. Increased premiums were predominately driven by a number of Government changes, such as hikes to Insurance Premium Tax (IPT) and changes to the personal injury discount rate.
IPT is calculated as a percentage of the annual cost of insurance which means that those who have higher premiums pay higher tax. This disproportionately penalises young drivers, who usually pay higher premiums, and therefore are charged an average of £134 in IPT every year compared to £77 for the rest of the UK.
This most recent increase in premiums could be driven by similar policy issues such as the delay in the changes to Whiplash claims which would have reduced premiums. In a written statement in parliament on 27th February, the Government postponed the implementation date to 1st August. While insurers may have begun pricing in those changes, it seems that they have had to re-increase premiums to factor in the delay. In addition, the recent changes to the Ogden rate and broader claims inflation seem to be driving premiums further up.
The gap of £121 between the cheapest and average premiums over the last quarter shows that shopping around remains the most effective way to save money on car insurance. For younger motorists between the ages of 17 and 24, the difference is much higher, with the average young person able to save £233 by switching to a better deal.
Dan Hutson, Head of Motor Insurance at comparethemarket.com, said:
“Following a period of reducing premiums, motorists will be disappointed that premiums have continued to rise. This spiralling cost of insurance is thanks, in part, to hikes in Insurance Premium Tax. IPT remains a fundamentally unfair tax, as those that can afford it least pay the most. IPT is calculated as a percentage of the annual cost of insurance which means that those who have higher premiums pay higher tax. This unfairly penalises young drivers, who usually pay higher premiums. The rising cost of running a car, particularly for younger people, is making driving a luxury for many who see it as a necessity.
“However, while the impact of the coronavirus is still unclear, the reduction in car usage could result in a reduction in premiums around the UK. The Government has reported a near 70% reduction in motor vehicle use across the country. With mileage reducing, this is likely to result in significantly fewer claims which could in turn mean that insurers can offer lower prices to consumers.”
Although IPT is partly behind the rise in car insurance costs, the main driver is undoubtedly the skyrocketing costs of repairing a car after a relatively minor collision. Modern cars now have ADAS and other systems which have to be recalibrated and checked before that car is driven again – quite rightly so.
That costs time and money, to train technicians for one thing, then there are storage costs on damaged cars, legal costs regarding injuries, loss of earnings, arguments over blame etc. Consumers want their car to be made as good as new after a minor accident and that often involves a great deal of dismantling at a franchised dealership or specialised bodyshop. Semi-autonomous cars also need to have their systems checked and tested – perhaps replaced – so that collision avoidance, lane detection, reversing cameras and sensors etc all works 100% after a shunt.
Those costs are putting up the cost of insurance for everyone.