The AA is calling on the Government to bring forward a promised review of the discount rate – as well as cut Insurance Premium Tax.
For many years the discount rate was set at plus 2.5% but in March this year it was reduced to minus 0.75% which has significantly increased the amounts insurance companies have to pay out which in turn increases premiums. The discount rate is based on returns from Government bonds and was overdue for review, but it was slashed by a much larger margin than expected.
The increase in compensation applied immediately to pay-outs which can run to millions of pounds for very serious injuries. Many insurers found themselves facing financial losses because of the much larger reserves needed to meet future claims. As a result, car insurance premiums increased sharply to close that gap.
Michael Lloyd, the AA’s insurance director says: “Because young drivers are responsible for the greatest number and highest cost of injury claims, their premiums have taken the brunt of the rises.
“Over the second quarter of 2017, the average quoted Shoparound premium** according to the AA’s British Insurance Premium Index, rose by 8.3%. Young drivers (17-22) – who already pay more for their insurance than anyone else, saw their premiums jump by 10.6% to an average of £1,771. But for new drivers, their first year’s premium can be an eye-watering £3,000 or more.”
The AA predicted in July that a consequence of these entirely avoidable government-prompted increases, more young drivers would risk illegal ways of getting behind the wheel.
“Car insurance is a compulsory purchase but with these hikes in costs, car insurance has been put out of the reach of many young drivers. So they are either putting off learning to drive at all or are attempting to drive without cover or are choosing to get a parent to illegally ‘front’ the insurance for their car. Fronting involves an experienced driver such as a parent insuring the car in their name but adds a young person as a ‘named’ or occasional driver, even though they are in reality the main driver.
“The AA has repeatedly called for the government to cut IPT back to 6% and waive it for new drivers, especially those who use telematics or ‘black box’ insurance; to reassess compensation claims and do more to prohibit fraud.
“I also wonder whether cutbacks in traffic police*** are leading more people to attempt to break the law and drive without insurance, which has led to the shocking increase in crashes involving uninsured drivers.
“Without radical government action we will just see more uninsured drivers on the roads which in turn leads to higher premiums for law-abiding drivers and pricing young drivers out of the market altogether.”
|
