Motor rises over 1% a month

The AA’s British Insurance Premium Index shows the average annual comprehensive motor policy rose by 3.5% to £778.13 – more than 1% per month - with average home contents quotes up 2.5% to £223.92.

Home contents quotes fell 3.2% to £122.34 - less than in 1994 when the Index started.

Average premium, quarterly and annual change

• Comprehensive £778.13 +3.5% +11.3%
• 3rd Party Fire & Theft £968.22 +4.6% +6.9%
• Buildings £223.92 +2.5% +10.1%
• Contents £122.34 -3.2% -6.3%
• Combined £298.40 +2.0% n/a

Simon Douglas, director of AA Insurance, says recent comments that premiums are static, based on quotes from aggregator websites, are misleading.

“The fact remains that underlying premiums are rising more steeply than they have since 2000 because of rising costs. There’s no getting away from the fact that the industry continues to suffer underwriting losses, which are predicted to be in excess of £240m this year.

“Customers are being tempted by cheaper quotes that offer lower levels of cover with high excesses so it is really important that they talk to their insurer to make sure that the cover meets their needs before they buy.

“Unusually, the Shoparound index rise is steeper than the underlying Index trend. This suggests that insurers and brokers who have been discounting most to gain market share through comparison sites are recognising the need for rates to rise to return the sector to profitability,” he says

Accidents still costly

“Although the number of accidents on Britain’s roads is thankfully falling, the cost of claims continues to rise – particularly personal injury claims and legal expenses.

During the current downturn, fraudulent claims are also putting pressure on premiums and I’m concerned that this is leading to an increase in the number of people who drive without insurance, currently estimated to be 1.6 million. The burden of claims involving uninsured drivers unfortunately falls to honest drivers, to the tune of £30 per policy.”

Young drivers hit hardest

The Index also suggests that young drivers once again appear to be shouldering a greater share of premium increases.

“The average quoted premium for third party, fire and theft (TPFT) insurance, typically bought by young and inexperienced drivers, rose by 4.6% to £968.22. The Shoparound premium rose 5.3% to £669.67,” Douglas says.

He points out that a growing number of insurers are withdrawing TPFT cover and only around half will quote for drivers aged under 21, who make 10 times more claims than drivers aged 35.

Douglas said: “I don’t see the pressure on premiums easing. Over the past three months more than 90% of quotes in the AA Index added £5 or more to their premiums and only 2% fell. During the previous quarter, 20% had reduced their premiums.

Home cover changes

The cost of a combined buildings and contents policy rose by 2% to £298.40 – which is more than the average quoted premium for separate buildings and contents policies added together.

Douglas, said: “This underlines the fact that even if you get a great price on buildings, the same insurer won’t necessarily offer the best deal for contents (or vice versa).”

Climate change forces costs up

Douglas said: “The industry is expecting rising cost and frequency of claims for flooding, subsidence and storm damage.

“Such claims aren’t simply confined to areas prone to flooding – for example, compared to the first six months of 2008 there has been a 15 per cent rise in the number and cost of payments for buildings damaged by flash floods and storms in areas with little or no previous record of such claims.

“Meanwhile, tighter building regulations means that structural repairs must meet modern standards for such things as electrical wiring and insulation. As a result, the cost of meeting a claim – particularly for older properties – has been rising steadily.

Contents claims cost rising

The number of theft claims has fallen but the average claim cost has increased.

“The number of fraudulent claims detected has also gone up by 30% this year, suggesting that insurers are becoming more skilled at identifying and dealing with potential fraud. This is good news for honest customers because, as we are seeing, it contributes to falling premiums.”