Insurers are predicting increases of around £75 a year for most drivers, and up to £1,000 a year for higher-risk categories – mainly those under 25.

This is against an existing backdrop of steep premium inflation – typical prices shot up by 6% in 2016 to an average of £530.

So why this sudden additional price hike? And – crucially – what can you do to avoid it? Most customers can cut up to £280 off their renewal price, so all is not lost.*

Why do compensation payments matter?

The hike follows a change to the way compensation payments for individuals who are seriously injured in road accidents are calculated.

A court decides the amount according to the victim’s potential loss of earnings and life expectancy. It then adjusts this lump sum to take account of likely returns when it is invested.

The higher the return, the lower the lump sum.

Recently, returns have tumbled, so the government has told insurers to increase lump sum pay-outs.

The scale of the change demanded by the government has shocked insurers – and because they’ll pass on the increase via higher premiums, it could give you a shock when you renew your policy.

What you can do

The change to lump sum calculations takes effect on 20 March – but premiums are already rising as insurers build up their pay-out kitties.

So now’s the time to act to make sure you get the best possible price for your car insurance.

GOLDEN RULES

- Never accept the renewal price offered by your existing insurer. It will almost certainly be way higher than what you could pay by shopping around – you could typically save £284*.
- Start shopping around 60 days before renewal. Some insurers allow you to lock-in a quote up to 30 or even 60 days before you have to buy. Locking-in now means you won’t suffer from any increases in the pipeline
- Get a fresh quote just before you renew. We’re always pushing insurers to lower their prices, so it’s worth checking before you commit to make sure you’re on the best deal.

The insurance industry is battling to change the government’s mind on this change to compensation pay-outs. You’ll probably read many more headlines on it in the coming days and weeks.

We’ll keep you up to speed. But whatever happens, we think car insurance renewal quotes will continue to rise, so follow the golden rule and always shop around.

*51% of customers could save up to £284.50 Consumer Intelligence, Oct 2016

Please note: any rates or deals mentioned in this article were available at the time of writing. Click on a highlighted product and apply direct.