Five ways government can cut the soaring cost of car insurance for honest drivers

James Dalton
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Car driving past rapeseed
The average car insurance premium has jumped 10 per cent over the past year (Source: Getty)

The rising cost of insurance understandably concerns many motorists. The average comprehensive motor insurance premium has risen by 10 per cent over the last year.

Today we lift the lid on what is driving up the costs of motor insurance, and what is needed to give hard-pressed honest motorists a break.

Lifting the Bonnet on Car Insurance sets out the potent cocktail of rising costs faced by motor insurers. These include: a 5 per cent rise in the average bodily injury claim so far this year, a 25 per cent rise in the average repair bill over the last three years, and successive rises in Insurance Premium Tax (IPT) that have increased the rate by 66 per cent in less than a year.

Our report sets out what is needed to ensure a fairer deal for motorists – a five point plan to help bring down the cost of insurance:

1. Reform personal injury compensation.

Government plans to further reform personal injury compensation – tackling low value whiplash claims and increasing the small claims limit (thereby reducing legal costs) – announced in the last Autumn Statement must go ahead. With some claimant lawyers and claims management companies continuing to exploit the system, and with whiplash-related injuries reported to the Compensation Recovery Unit on the rise, the sooner this starts the better. Until we get a grip on this, honest motorists will continue to pay the price.

2. No further rises in IPT.

Successive rises have seen this tax leap from 6 per cent to 10 per cent in just under a year. IPT now adds around an extra £40 to the average motor insurance premium. This raid on the responsible must stop, especially as its impact is likely to be felt the hardest by younger motorists.

3. Make young drivers safer.

Young drivers pay some of the highest motor insurance premiums, reflecting their poor road safety record (17-19 year olds make up 1.5 per cent of all licence holders, but account for 9 per cent of serious or fatal road crashes). Insurers are doing their bit through telematics policies that monitor and reward safer driving, but government action is needed to help all young drivers. Other countries, such as Australia, New Zealand and parts of Canada, have taken steps that have significantly improved young drivers’ safety. Northern Ireland recently legislated to introduce Graduated Driver Licensing, and it is time for the government to follow suit.

4. Incentivise safer vehicle technology.

Vehicles are becoming safer, and autonomous driving technology has the potential to make our roads ever safer too. With Autonomous Emergency Braking (AEB) proven to reduce the frequency and severity of vehicle collisions, the government should consider making it compulsory for all new vehicles.

5. Tackle motor insurance fraud.

While most customers are honest, a minority are not. Last year insurers uncovered 70,000 dishonest motor claims valued at £800m. This is a cost that would otherwise have been borne by honest customers. Continued industry investment in initiatives such as the specialist police investigation unit, the Insurance Fraud Enforcement Department and the Insurance Fraud Bureau is vital to protect motorists. But the government has a role to play as well: it should implement the recommendations of the Insurance Fraud Taskforce report sooner rather than later.

Every motorist wants competitively priced insurance that meets their needs. This is exactly what the industry is determined to deliver by reducing unnecessary costs and providing a first class customer service. The government needs to play its part as well, not least through prioritising implementation of planned further reforms to stem the worst excesses of the compensation culture.

City A.M.'s opinion pages are a place for thought-provoking views and debate. These views are not necessarily shared by City A.M.

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