This week the AA recorded the highest rise in car insurance premiums since it began reporting market data. The average figure for the three cheapest car insurance quotes now stands at £2,457, with men aged 17-22 suffering a 47 per cent hike in just one year. The AA findings follow a recent YouGov SixthSense market report on motor insurance. The report shows that premium rises are coming off the back of a recessionary period where many consumers were forced to change their policy for both cover and cost related reasons. Fifty-seven per cent of car insurance holders who say they cancelled a policy in the past, say they did so during the recession.
In addition, the graph shows that 61 per cent of comprehensive motor insurance policy cancellations recorded in the survey were carried out without the policyholder having another policy lined up; suggesting the importance of lifestage and lifestyle changes, the abandonment of car ownership and the possibility of driving without insurance.
The report also suggests that premium increases could be attributed to profligate strategies adopted by insurance companies in recent years. It argues that during this period insurers often underwrote premiums in order to expand market share and policy volume at the expense of profit – an unsustainable gambit that would appear to have come back to bite insurers and consumers alike.
However, insurers point to the rising cost of car repairs at a rate of between 7-10 per cent per year as one of the factors driving up premium rates. Moreover, the number and value of personal injury claims being made following car accidents has been rising, despite an overall drop in accident numbers. Insurers argue they have to build reserves in order to deal with the proliferation and inflated cost of injury claims, thereby necessitating higher premium rates.
Stephan Shakespeare is founder and chief executive of YouGov.