UK motor insurers appear to be taking a gamble on the claims cost savings that may arise from recent legal reforms. Average comprehensive premiums fell by a further 3.9%, the equivalent of £26 per policy, in the third quarter according to the latest Confused.com Car Insurance Pricing Index, in association with Towers Watson.
The latest decreases mean that the average cost of a comprehensive policy has fallen by 13.9%, or £105, in the last 12 months, to £652. Premium levels have not been this low since March 2010. Over the same period, the average third party, fire and theft (TPFT) premium across the country has also fallen significantly, by 6.5% to £1,057.
Comprehensive cover prices have now fallen in eight of the last nine quarters, with most of the recent decreases attributable to the implementation of the Legal Aid, Sentencing and Punishment of Offenders Act (LASPO) and the associated reduction in fixed legal fees for personal injury claims.
However, Stephen Jones, UK general insurance pricing leader at Towers Watson, sees a complex picture behind the latest price reductions. “Already we’ve seen a number of senior figures within the industry suggesting that some may have placed too big a bet on LASPO and the other reforms. But there are other factors at play here. For younger drivers, an increasing number of telematics offerings are driving down average premiums, whilst for mass-market risks, data enrichment is providing a basis for more confident, targeted price reductions. On the basis of these trends, we’d expect to see the cheapest premium measures to keep on falling, but with increasing price dispersion.”
Young drivers were the main beneficiaries of the third quarter price reductions, with this customer group benefitting from both telematics offerings and segmental price changes driven by LASPO. Average comprehensive premiums for 17 and 18 year olds both fell by over 8%;
Further evidence of the ‘LASPO effect’ was apparent within regional price movements. In Manchester and Merseyside, areas which had the highest concentration of claims management companies prior to LASPO, average comprehensive premiums fell by nearly 7% in the third quarter. This figure included the second consecutive double digit quarterly percentage decrease for 17-20 year olds living in the region.
At postcode level, prices have been falling fastest over the last year for the residents of West Central London, Llandrindod Wells, and Huddersfield. In contrast, drivers with a comprehensive policy in Inverness received a 2.6% increase in the third quarter, meaning that their prices have been falling the slowest in the last 12 months.
Gemma Stanbury, Head of Motor at Confused.com, commented: “In the last three months we’ve seen a significant reduction in car insurance prices across the board, seeing premiums drop by an average of 13.9% year-on-year. It’s great news for most motorists as their average premium is now more than £191 cheaper than it was two years ago.
“As well as a yearly drop in car insurance motorists are also enjoying a 3.9% decrease in the last quarter alone (Q3 2013). We would recommend that motorists take advantage of falling prices, rather than simply accepting their renewal price.”
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