This latest increase means that the average comprehensive premium has now reached £847, an 8.4% rise (or £66) during the second quarter of 2017 alone, and just £11 short of the most expensive premiums recorded in 2011 (£858). With the exception of the first quarter of 2016, when prices experienced a brief plateau, the underlying price trend for the last three years has remained steadily upwards, with figures from the Price Index+ service showing monthly price increases recorded in 10 of the last 12 months.
According to Willis Towers Watson, the latest rise in prices reflects the latest increase in Insurance Premium Tax (IPT), which has been rising since July 2015 and increased by 2% to 12% last month, as well as a reaction in pricing to the recent marked reduction in the Ogden discount rate, which Willis Towers Watson has previously estimated will cost insurers and reinsurers up to £5.8bn.
Another significant driver of rising premiums is the continuing increases that insurers are seeing in the cost of vehicle repairs, fuelled by Brexit’s impact on car part prices and by greater repair complexity as the level of expensive technology in vehicles increases. The announcement in the Queen’s speech last month of the introduction of a new Civil Liability Bill, which could save motorists around £35 per year through measures including a ban on drivers making claims without medical evidence, is unlikely yet to have impacted the Index figures.
Stephen Jones, UK Head of P&C Pricing, Claims, Product and Underwriting at Willis Towers Watson, commented: “Another increase in Insurance Premium Tax, the Lord Chancellor’s cut to the Ogden discount rate, and the continued Brexit-related weakening of Sterling, when overlaid on underlying high levels of vehicle repair cost inflation, have reversed the recent trend of reducing annual increase rates for comprehensive motor prices. We will continue to monitor repair cost inflation trends closely though our claims benchmarking service and our work with suppliers of vehicle technology options data.”
Every age group has been affected by double-digit annual increases. Notably, drivers aged 62 experienced the highest annual price increase of 23.6% taking their premiums to £534. Drivers aged 18 may have experienced the lowest rise at 11%, but they continue to pay more than any other age group (£2334).
The cost of comprehensive car insurance rose across the UK with every region experiencing a price increase. The Scottish Highlands & Islands account for the sharpest quarterly hike in premiums (12.6%), with drivers now paying £668. In England, drivers in the South West were hit almost as hard with their insurance premiums rising on average by 12.5% to £622. More locally focused data shows drivers in West Central London were hit by the highest quarterly increase in England, by 21% to £1542[1], compared with Ilford in Outer London, which benefited from the lowest rise in average prices of 2.1% to £1368.
Stephen Jones noted: “Proposals in the Civil Liability Bill to crack down on fraudulent whiplash claims and help reduce motor insurance premiums have been widely welcomed. However, insurers will be concerned that Government plans to review the Ogden rate appear to have taken a backseat after reforms were left out of the Queen’s Speech. If left as it is, the current rate will most likely cancel out any savings delivered by whiplash reform.”
Steve Fletcher, Head of Data Services at Confused.com said: “In line with our previous forecasts, car insurance prices are now almost as high as they’ve ever been – with no evidence to suggest the increases are going to abate. The £1,000 average premium is still on the horizon, but getting closer.
“We can’t say that we’re shocked by these figures, following the cut to the Ogden discount rate and the doubling of IPT in less than two years, in conjunction with the increasing vehicle repair costs and combined ratios in excess of 100 still being commonplace. There is every likelihood that car insurance prices will be the most expensive on record by the end of this year.”
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