The government has been blamed for motor insurance premiums rising at their fastest ever levels.
The Association of British Insurers (ABI), the trade body representing the UK’s insurance sector, today said annual motor premiums had jumped by 11 per cent in the last year. The rise is almost four times the current rate of inflation.
The average annual cost of comprehensive motor cover is £484, the ABI said, adding its study is the only one based on prices actually paid rather than quotes given.
A double-whammy of government policies is responsible for the increases, according to the trade body: both the slashing of the personal injury discount rate and June's rise in insurance premium tax from 10 to 12 per cent.
ABI director general Huw Evans said despite the UK motor insurance market being one of the most competitive in the world an “unprecedented increase in claims costs is driving up prices to record levels”.
The reduction in the discount rate, which effectively increases the level of payouts to injured claimants, means insurers pass this additional cost onto customers by way of premium increases.
This dramatic increase drives home how important it is the government press ahead with a new framework for the discount rate and call a stop to further hikes in insurance premium tax.
A ministry of justice spokesperson said: "We have consulted on whether there is a better or fairer framework for claimants and defendants in cases of serious personal injury. We will respond to the consultation in due course."
Later today the House of Lords will debate the government’s handling of the reduction of the discount rate from 2.5 per cent to -0.75 per cent in February.
The issue of rising motor insurance costs was referenced in during the state opening of parliament in June. In her speech, the Queen said legislation needs to be introduced "to help reduce motor insurance premiums".
However, injury lawyers hit back at the motor insurance sector. President of the Association of Personal Injury Lawyers Brett Dixon said:
The insurance industry has been vociferous in blaming the correction for rising motor premiums. It is scandalous that the blame for the mismanagement of the discount rate is being put at the door of seriously injured people.
Meanwhile, the full effect the discount rate cut is yet to be felt, the ABI warned. This is because insurance premiums are linked to the cost of insurers taking out their own protection, or reinsurance.
Reinsurance premiums are usually negotiated annual with most set to take place in January.
Evans said: “Increases are unlikely to be the end of the road if reinsurance premiums go up at the end of the year, adding further costs to insurers.”