Motor premiums fall amid rates tug-of-war

Average car insurance premiums unexpectedly fell during the third quarter this year, despite inflationary pressures in the market.

The average UK car premium was £783.28 for the most recent quarter, a fall of £6 on the previous quarter, but still £23 more than the same period last year, according to figures produced by Willis Towers Watson/Confused.com’s car insurance premium index.

Premiums have been rising steadily since mid-2018 as the cost of repairs continues to rise, and Brexit uncertainty plague the market.

Source: WTW/Confused.com

The government’s decision to change the Ogden rate from -0.75% to -0.25% when most insurers had been expecting at least 0%, as well as the impending impact of the FCA’s crackdown on some pricing practises were also expected to have an inflationary effect on premiums, but these have not yet fed through.

Confused.com’s head of data insight Steve Fletcher attributed the fall to there being fewer young drivers on the road and more care sharing, as well as ”more advanced and efficient analytics to help determine prices”. He added that there was a “tug-of-war effect on prices” at the moment.

UK Lead of P&C Personal Lines Pricing at Willis Towers Watson Graham Wright predicted more price volatility ahead. 

”Besides the FCA report and the new Ogden rate, the impact of which has yet to be fully costed by insurers, the industry is still grappling with inflation challenges and uncertainty around the impact of the Civil Liability Bill – all of which suggest that the current uncertainty will continue in the coming months.”

Young drivers - between 17 and 20 - saw premiums fall the most (4%), despite still paying the most for their car insurance. Male drivers aged between 36 and 40 saw a 2% increase, paying an average of £704 in the latest three months of the year.

The biggest fall was seen for drivers in the Welsh town of Llandridod Wells. Their premiums fell 28% compared with the second quarter of 2019 while premiums in west central London declined by an average 15% for the same period.

Wright added: “The fluctuations in premium levels seen across recent quarters, although relatively minor, reflect the significant uncertainty in the industry at the moment arising from both the implications of the personal injury discount rate change announced in July and the FCA’s interim report on general insurance pricing practices.

”In particular, the FCA’s report identifies a number of potential remedies, each of which will have some impact on pricing decisions for insurers in the next few months.”

Manan Sagar, Fujitsu chief technology officer said the fall is ”a worrying sign for the industry and signals a need for change in the general insurance pricing practices”. 

The industry is only at the beginning of its gradual transformation; and while previously insurance premiums were calculated based on a partnership of three stakeholders: the client, the broker, and the insurer, there’s now a fourth player involved: the tech provider who can process, analyse and deliver the data to better calculate and manage the policy.

“The focus on precision and prevention can help reduce insurance costs by as much as 50% on an on-going basis, not just in the first year. This will not just help the millions of loyal customers who do not switch each year, but will make the society safer.