When it comes time to renew your car insurance this year, will your current insurer try to push through a hefty premium increase?
Chances are, it will. It’s routine for insurers to charge their existing policyholders more than they expect new customers to pay, for the simple reason that they want more customers on their books.
That’s why we urge drivers to shop around at renewal, rather than let their policy renew automatically. Making yourself a ‘new’ customer is the most effective way to keep a lid on premiums. If you remain an ‘old’ customer, you effectively subsidise the prices on offer to new ones.
But insurance company marketing shenanigans aren’t the only reason your premiums could go up this year.
Insurers are facing concrete increases claims costs, which are being fed through to their customers. Let’s have a look at the main reasons for premium inflation…
Car theft is on the up, after years when improved in-built security has kept criminals at bay.
One of the problems is that thieves have managed to clone and corrupt the technology behind the manufacturers’ security systems.
Drivers are reportedly investing in mechanical devices such as heavy-duty steering wheel locks to supplement factory-installed locks and immobilisers.
If you are concerned about security, contact your dealer or the manufacturer’s website for guidance.
- Compensation payments
When someone is seriously injured in a traffic accident, the ‘at-fault’ driver’s insurance company pays compensation to account for lost earnings and future medical care and living costs.
The sums involved are set by the courts and are adjusted by something called the discount rate. This reflects the amount the injured party might expect to earn on the lump sum once it is invested.
Last year the discount rate was slashed from 2.5% to -0.75%. So instead of paying out £975 for every £1,000 of compensation, insurers had to pay £1007.50. This led to a huge spike in car insurance premiums.
After intense lobbying by insurers, the government has promised to partially reverse the change in the discount rate. But we don’t know what the final rate will be, or when the next change will take effect.
So while there is cause for some optimism that premiums might eventually ease back, they remain at high levels to reflect the -0.75% rate as it currently stands.
Fraudulent claims are thought to add up to £50 to every car insurance premium.
Exaggerated and fabricated whiplash claims are considered the prime culprit, with criminals regularly staging or causing ‘accidents’ to involve innocent drivers and their insurers.
The government has proposed an overhaul of the small claims process that would make the area less lucrative for claims management companies.
It also wants to ban compensation payments where no medical evidence is available, and to introduce a tariff of awards according to the severity of the injury.
There has been mention of reforms coming into effect in September or October, but nothing definite is known as yet.
Today’s cars are loaded with expensive computer sensors and performance management systems.
This can cause problems if repairs require specialist technicians along with expensive replacement parts. And if the car is off the road for an extended period as a result of the logistics involved, the cost of a replacement vehicle will also come into play.
All this feeds through into the premiums charged.
Insurance premium tax is levied at 12% on most premiums, including car insurance - up from 6% just two years ago.
The fear is that the government will increase it further, either in the spring statement in March or the Budget proper in November.
In addition to shopping around at each renewal, you can keep a lid on your insurance costs by:
- Pay upfront: If you can afford it, pay in one go as insurers charge more if you opt for instalments
- Increase your excess: Choose a higher voluntary excess and your premium should dip
- Try telematics: Some insurers charge less if you fit a black box device that monitors your driving - so long as you demonstrate that you are a safe and responsible driver
- Park off-road: Not everyone can, but if you can park on a driveway or in a garage overnight you’ll get a lower premium.
You can check out our latest research into car insurance premiums here.