The Association of British Insurance announced an 11% year on year increase in car insurance premiums.
Motorists who are renewing their car insurance cover will notice their premiums have risen by an average of £48.00 compared to last year. This brings the average total to a whopping £484.00. According to the ABI Premium Tracker the increase is approximately four times the rate of Inflation and the largest year on year rise in 5 years.
The ABI have equated this new record high to the Government’s mandate to cut the Personal Injury Discount Rate from 2.5% to -0.75% and increase Insurance Premiums Tax by 2%. The last time the Discount Rate was reviewed was in 2001 and the government claim the new rate represents or current market.
The Discount Rate figure is used by insurance companies to set compensation pay outs when a customer suffers a serious injury from a car accident or medical negligence. To calculate pay-outs after an incident, insurers apply a multiplier which takes into account age, gender and mortality risks in order to determine a claimant’s financial needs over their likely lifetime. The new rate, reduced in March this year, has been described by the ABI as, “the lowest in any advanced economy”.
Industry experts have warned that the decision could land the already burdened NHS with an additional annual £1 billion bill.
Huw Evans the Director General of the ABI has said: “This dramatic increase drives home how important it is the Government press ahead with a new framework for the Discount Rate and call a stop to further hikes in Insurance Premium Tax. The UK is one of the most competitive motor insurance markets in the world, but the unprecedented increase in claims costs is driving up prices to record levels.”
Mr Evans pointed out that older drivers and those aged 18-25 are likely to be hurt by the increases the most.
“lowest in any advanced economy”
Brett Dixon, President of the Association of Personal Injury said: “During this time insurers quietly reaped the financial benefits of not having to pay what they owe to people with life-long, life-changing injuries.”
Despite Personal Injury lawyers claiming that insurers are benefitting from the reduced rate, local companies are feeling the pressure to keep up with the competition.
Shan Budesha, Company Director of Top Marques Insurance has spoken about the adverse effects the changes have had on high street insurance companies.
Swinton Insurance are to shut 84 branches and make 900 employees redundant in a bid to reduce the rising costs. The closure was announced one month after the Discount Rate was reduced to –0.75%.
Mr Budesha said: “The Governments decision on how personal injury compensation claims are to be calculated caused an absolute uproar with UK insurers. This move will cost the insurance industry millions, and up to 36 million individual and business car/van insurance policies will see an increase in renewal premiums as well as an increase in liability premiums for businesses.”
According to the Mr Budesha : “Insurers starting to grasp the insights into an individual’s risk through data analytics, telematics and technology, this could help with predicting future claims losses based on current driving behaviour thus help with premium calculations.”
When choosing a new insurer at the time of renewal to get the best value for money and keep costs down he advised that motorist should check the Defaqto rating as well as customer reviews.
He added, “do not cut corners with your policy cover or manipulate your information incorrectly in order to drive your premium down.”
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