Overcoming high car insurance prices
Car insurance premiums have been falling lately, but they are still at a level where they can take a big bite out of a motorist’s budget. So why is car insurance so expensive?
The cost of car insurance is high for the simple reason that the cost of claims is high. Insurers therefore bump up premiums to protect their finances – and many of them say that they make little or no profit out of motor insurance business.
Unfortunately, many car insurance claims are fraudulent – and it is honest motorists who end up paying the price.
The cost of fraud
The insurance industry uncovers 2,670 fraudulent claims worth £19 million every week. Insurers have recently established the Insurance Fraud Register to hold details of known fraudsters in an attempt to combat the problem. The register complements the work of the Insurance Fraud Bureau in detecting fraudulent claims and the Insurance Fraud Enforcement Department, which prosecutes fraudsters.
Your postcode can affect your premium as cars in some areas are more vulnerable to theft and vandalism than others
Home insurance frauds are the most common, but dishonest car insurance claims are the most expensive, largely due to claims for whiplash injuries.
Whiplash claims
Whiplash claims are a particular problem for insurers: there are about 1,500 whiplash claims in the UK every day. They cost the industry £2 billion a year and add a hefty £90 to every car insurance premium.
Whiplash is notoriously difficult to diagnose as it does not show up on X-rays or scans, so the system is open to abuse. But the government has recently announced plans to cut the number of whiplash claims in England and Wales by making it easier for insurance companies to challenge a claim for whiplash injury.
Independent medical panels could in future assess the validity of whiplash cases in a bid to stamp out fraudsters. It would also be easier to challenge whiplash claims in the small claims court.
Ban on referral fees
The government also plans to ban referral fees in personal injury claims. At the moment, personal injury details are often sold on by car insurance companies to lawyers, leading to an increase in compensation claims.
There has been a 60% rise in personal injury claims relating to road accidents since 2006, even though our roads are getting safer, with a 20% fall in reported accidents. It is hoped that the ban will curb some of the excesses of our compensation culture and lead to a fall in premiums.
The government also plans the cap solicitors can charge in fees for road traffic accident cases to £500 (or £750 for claims over £12,000).
Uninsured motorists
The insurance industry is not only fighting fraudsters, it is also battling uninsured drivers. There are more than one million uninsured motorists on Britain’s roads, and they too cost us dear.
If you drive without car insurance, you don’t pay any premium, but the insurance industry still has to cover the cost of any injury or damage to another person or car in the event of an accident. Uninsured drivers add an estimated £30 to the average car insurance premium. Plus, they kill 160 and injure 23,000 other road users every year.
Insurance enforcement
The government has recently introduced legislation to crack down on uninsured motorists, known as Continuous Insurance Enforcement (CIE). Basically, if you are the registered keeper of a vehicle – so you are the personal responsible for taxing the car – you must make sure it is insured at all times, even if it is kept in the garage.
The only way round CIE is to declare the car off the road with a Statutory off Road Notification (SORN) from the DVLA.
The penalties for flouting the rules can be harsh. You could be issued with a fixed penalty of £100 and your vehicle could be clamped, impounded or destroyed. In the most serious cases, you could face prosecution and a maximum fine of £1,000.
Dishonest drivers push up car insurance premiums for everyone, but some motorists still pay a higher price for cover than others. It’s all down to the risk they pose to the insurer. Women are statistically safer drivers than men but insurers can no longer take gender unto account when they set car insurance premiums following a ruling by the European Court of Justice.
Car insurance for young drivers
However, car insurance companies can still charge different premiums according to age. Car insurance for young drivers is more expensive than for older motorists because they are more likely to put in a claim. One in five drivers has an accident in the first year of driving and about a quarter of road accidents involve a driver between the ages of 17 and 24.
In other words, young drivers are risky. So it’s perhaps no surprise that they can pay more than double the average car insurance premium, with the cost of a policy often running into the thousands.
Insurers take a number of other risk factors into account when determining premiums. Your postcode can affect your premium as cars in some areas are more vulnerable to theft and vandalism than others.
Risky occupations
Your occupation can also push up the cost of car insurance cover as some jobs are considered more risky than others. A stuntman, for example, will pay more for car insurance than an accountant.
If you drive your car for business purposes, you should always inform your insurer. Standard motor insurance covers social, domestic and pleasure use only, perhaps embracing a regular commute to the train station or place of work. But, if you drive your car as part of your job, you will need a specialist policy, or the insurer could legitimately refuse to pay a claim.
Car insurance groups
Insurance companies classify all cars built to UK specifications into one of 50 car insurance groups – and the higher the insurance group, the higher the premium.
The ratings are decided according to information on the likely cost of any claim, including the time and cost of repairs, the value of the car when new, the performance of the car and the standard safety features on the vehicle. If you are buying a car, it is therefore a good idea to first check out which group it has been assigned to. You can read more about this on our guide to car insurance groups.
There are several ways to cut the cost of car insurance. For example, if you compare cheap car insurance quotes at renewal using MoneySuperMarket’s free independent comparison service you could knock hundreds of pounds off your premium.
Careful drivers can also build up a no-claims discount, or what about a telematics insurance policy? You can find out more money savings tips on our page.