Car Insurance Guide

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What drives the cost of car insurance

People often grumble about rising car insurance costs. Why do prices go up?

Clearly, there are many factors that influence the quote you will be given. Some are personal to you and will be discussed in another section of this guide.

Others depend on the level of benefits you want from your motor insurance policy. Details of these – which you can pick and choose between and thereby influence the price you pay – are also detailed elsewhere.

But there are factors that you have little or no control over and depend on outside circumstances.

Here are some factors that influence how much you pay for your motor insurance.

1) The soaring cost of litigation: drivers are more likely nowadays to claim for personal injury, like a serious case of whiplash, and the amounts paid out for injuries are much higher than they used to be.

Insurers have attempted to intervene to control these costs. But courts that find in favour of claimants still make very significant awards in cases of serious injury or death. And from the point of view of claimants, this is a positive thing.

2) NHS costs: accident and emergency departments can now claim for cost of treatment from the insurance company. This includes ambulance costs.

If you are the blameless victim of an accident, the bill will be paid by the opposite party’s insurer. Conversely, if you are to blame, your insurer will have to pick up the tab. NHS bills can, perhaps surprisingly, be very expensive.

3) Uninsured drivers: official statistics say that one in 20 drivers is uninsured. But recent research carried out by pollsters Mori suggests that this figure is more like one in 10 drivers, albeit that the uninsured period in many cases may run to just a few days or a few weeks.

This is cold comfort to someone who is involved in an accident with an uninsured driver. This adds around £30 to the average annual premium.

Ironically, this can produce a Catch-22 situation: as premiums get higher it becomes even more tempting for some people not to take out car insurance.

4) Stock markets: few people realise that insurers try to “stockpile” funds so that they can pay out in the case of claims. This means money taken in premiums is often invested until it is then paid out.

This strategy is more obvious in the case of home insurance, where storms can lead to very large – and sudden – claims. But to a lesser extent it also applies in the case of motor insurance policies.

Inevitably, this is not much use if markets are plummeting. Again, the recovery in world stock markets since 2003 is what has helped keep premiums at “reasonable” levels.