Motor premiums hit highest levels ever, says AA

Car insurance premiums have reached their highest ever level, according to the AA’s benchmark British Insurance Premium Index.

The Index shows that over the past quarter, the average quoted premium index for an annual comprehensive car insurance policy rose 2.5 per cent to over £822.

This is, for the first time, more than twice the index quoted in July 1994 when the AA Index was first published, said the AA. Premiums rose by over 6 per cent in 2006, but after falling slightly during the first quarter of 2007 have resumed their upward trend.

The average premium quoted for those who buy third party, fire and theft (TPFT) insurance also rose to its highest ever level, passing the £1,000 mark for the first time, said the AA.

“There is still a large gap between premium income and the cost of claims so I’m not surprised to see the generally upward trend of the previous year resuming. I think this trend is likely to continue,” says Kevin Sinclair, managing director of AA Insurance.

However, both home buildings and contents insurance premiums fell slightly, cancelling out recent small increases and reflecting the continuing competitive market for home cover.

With a fall of nearly 2 per cent, the average quoted premium of under £207 for buildings cover shows little change over the past year. Contents insurance fell by just over 1 per cent to £147.

Heavy discounting and good quoted results are keeping the lid on both buildings and contents cover and as a result, recent premium increases have been cancelled out.

However, Kevin Sinclair said the recent widespread flooding would not necessarily signal an immediate rise in home insurance premiums.

“It will take a sharp increase in the number of extreme weather events of the sort we have seen in Yorkshire and the Midlands to have an impact,” he said.

“But I am concerned at the number of people counting the cost of the recent floods who say they had no contents cover while many industry experts believe that up to two thirds of those who do have cover are under-insured. Recent events show that severe weather can affect anyone so while premiums remain low, it would be a good time for people to review their home insurance.”