Car policy costs leap 14%, the fastest rise for 15 years

Car insurance premiums have risen 14% this year, faster than at any time over the past 15 years, according to the AA British Insurance Premium Index.

The index, which tracks the quarterly movement of car and home insurance quotes, recorded a 5.6% jump for comprehensive car insurance over the three months ending 30 September, which means the average premium has increased by 14% since the start of the year.

AA director of insurance Simon Douglas said the rises were unprecedented. “Car insurers are facing fast rising costs, reserves for paying claims are depleted and investment income has fallen, largely because of the recession.

“I estimate that across the industry, up to £110 is being paid in claims for every £100 taken in premiums – a situation that is clearly unsustainable. Despite motor insurance being one of the most competitive markets, insurers have little choice but to put premiums up.”

An ABI spokesman said: “Premiums are going up because claims costs are rising and insurers are under pressure from falling investment returns.

“Some of the those rising claims costs are in personal injury claims, legal fees and insurance fraud. It’s a tough market but one that insurers will come through.”

In a separate study, Deloitte forecast an increase in claims inflation next year from 4.4% to 5.4%.

Allianz’s head of commercial and motor trade, Roger Ball, said the increase in computer-driven technology systems within vehicles, especially fleet, was one reason for the inflation as they cost more to repair.

Deloitte estimates net operating ratio will improve from this year’s 107.4% to 106.7% next year, across both commercial and personal lines.

Ball said the forecast showed insurers would need to improve their underwriting to make profits.

“You would have got away with that strategy three years ago when investment returns were high and stock market returns were less volatile. Now you cannot afford to run too high a combined operating ratio.”