AA British Insurance Premium Index

The AA British Insurance Premium Index (Index) has been tracking the quarterly movement of car and home insurance since 1994. It measures the market average premium (an average of all quotes on UK-representative baskets of 'customers') as well as the five cheapest quotes for each 'customer' to provide the Shoparound premium.

AA British Insurance Premium Index

Car and home insurance news – 2014 quarter 3

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Fall in car insurance premiums comes to an end

  • £6 premium rise – start of an upward trend?
  • Laspo reforms not delivering claims cost savings, says AA

Home insurance premiums still falling

  • Benign weather keeps premiums competitive
  • Flood Re – uncertainty remains

2014 – Happy 20th birthday BIPI


What does the British Insurance Premium Index do?

Car insurance
The Index records premium movements for 2,800 car insurance 'customers' throughout the UK, from around 80 providers. The premiums are averaged to provide a market 'average quoted premium', while the Shoparound premium is an average of the cheapest five premiums returned for each 'customer' in each basket of risks, and is thus closer to what customers pay for their cover.

Home insurance
For home insurance, average premium movements are calculated from 750 customers in each basket of risks separately for buildings, contents and combined covers and from about 70 insurers, brokers and schemes.

Aggregators
The Index started separately tracking for comparison sites (aggregators) from the fourth quarter 2009. The same baskets of risks for both home and car insurance are used to obtain prices from selected comparison sites, and works in the same way as the main Index.

2014 – Happy 20th birthday BIPI

The AA British Insurance Premium Index (Index) has been tracking the quarterly movement of car and home insurance since 1994. It measures the market average premium (an average of all quotes on UK-representative baskets of 'customers') as well as the five cheapest quotes for each 'customer' to provide the Shoparound premium.

 

Celebrate 20 years of the Index with our special BIPI infographic

BIPI 20th birthday infographic

BIPI 20th birthday infographic

The UK's longest-running insurance premium tracker

  • Car premiums – a roller-coaster
  • Home premiums – few ripples in the millpond

The AA British Insurance Premium Index (BIPI) has been tracking the quarterly movement of quoted premiums for car and home insurance since July 1994.

Over the two decades of the Index, the market average quoted premium for comprehensive car insurance saw a four-fold increase to 2012, but has since fallen to less than three times the 1994 figure.

Conversely, premiums for home cover have been relatively stable, although there have been relatively modest increases following major weather events, such as the widespread flooding of 2007.

The AA BIPI is the longest-running insurance industry tracker of its type, and the only one to track the movement of home insurance premiums, as well as motor. It has become a widely recognised industry benchmark that is frequently quoted in the media, and by industry analysts and commentators.

It is also closely followed in government circles and has prompted comments in the House of Commons, which in turn led to a Transport Committee inquiry, at a time when car premiums were rising extremely sharply during 2010.

The Index has been developed and refined. Originally starting with just 50 risks for car and home insurance, it simply provided a market average premium derived from quotes obtained from insurers and from brokers.

With the advent of price comparison sites the gap between the cheapest and most costly premiums for any given risk broadened and in 2003 the 'Shoparound' tracker was introduced. This provides an average of the five cheapest quotes for each 'customer' in the basket of risks, providing a more realistic reflection of the price that a buyer might expect to pay for their cover. The Shoparound average can be up to 40% lower than the market average.

In 2010 the Index started separately recording premiums from price comparison sites, using the same basket of risks as for the direct and broker market. The Index now also provides an aggregation extracted from both direct and price comparison site markets against a nationwide basket of 5,000 'customers'. This allows for regional breakdowns as well as analysis by age, for example.

Car insurance – 20-year roller-coaster ride

In 1994 the car insurance sector was highly fragmented while benefiting from investment income, allowing premiums to fall rapidly. Comprehensive premiums had dropped 9 per cent by April 1996 – an unsustainable level which, coupled with abolition of the 'knock for knock' agreement, led to industry consolidation and some exits from the market.

Premiums rose sharply from mid 1996 and by January 1997 were back to their 1994 levels. By 2007 the Index average quoted premiums had doubled.

Today the average quoted premium for car insurance is once again falling and at record rates. Nevertheless, the current market average premium is £888, having peaked in 2012 at £1,263, a four-fold increase compared with the £326 average quoted in July 1994. There is little sign, as yet, of a halt in the current downward trend.

However, today's Shoparound average, using data from the combined direct and price comparison site indices, is £504.

The steepest rate of increase in the history of the Index was 40.1% over the 12 months ending 31 March 2011. It was this alarming rise that prompted the House of Commons cross-party Transport Committee to launch an inquiry into the cause – which largely has been attributed to a significant increase in the number and cost of personal injury claims, particularly whiplash injury, despite the number of road traffic collisions falling.

The first of a range of measures has since been introduced by the government, prompting the present fall in premiums which started late in 2012 and continues. This is now largely explained by competitive pressure, and most insurers agree that the downward trend is out of step with claims costs, which continue to rise.

The AA believes that the downward trend will come to an end towards the end of 2014 or early next year, and start rising again unless government reforms lead to a significant reduction in exaggerated or false whiplash injury claims.

Over the last two decades:

  • The cost of a litre of unleaded petrol has risen from 57p to 131p1
  • The cost of a family car has risen from £10,500 to £20,4002
  • The number of private cars on Britain's roads has risen from 23.8m to 31.9m3
  • Thefts and attempted thefts of and from vehicles fell from 4.3m (1993–94) to 1.09m (2011–12)3
  • Annual vehicle tax rate in 1994 was a flat £135. It now ranges from zero to £1,090 depending on car age, type, fuel or exhaust emissions4
  • The average age of a car on Britain's roads in 1994 was 6.97 years; today it is 7.59 years5

Home insurance – few disturbances in the premium millpond

The home insurance market is more profitable for insurers than motor, despite concerns about severe weather.

The severe flooding of 2007 led to a period of buildings insurance premium increases which peaked at £222 in 2012, but premiums have since followed a downward trend. Today the average quoted premiums for a buildings policy is £192, compared with £158 when the Index started.

The 2007 floods also prompted a review of the informal 'Statement of Principles', which since 2002 has helped to ensure that those with homes in flood-prone locations could continue to obtain cover.

The Statement expired in June 2013 but was extended until new arrangements were put in place. However controversy still surrounds the preferred 'Flood Re' solution, which has yet to be implemented.

So far as contents cover is concerned, over the past 20 years home security has improved, leading to steadily falling burglary rates. Consequently the average quoted premium for a home contents insurance policy is £102, which remarkably is £2 less than it was at the launch of the Index. At its peak it was only £13 higher, reflecting the severe winter of 2011 and a sharp rise in claims for burst pipes.

Home insurance represents extremely good value for money as in real terms premiums have fallen significantly over the past two decades.

Over the last two decades:

  • Average house prices have risen from £62,750 to £184,4626
  • Average Council Tax per dwelling in England has risen from £437 (1993–94) to £1,468 (2013–14)7
  • Domestic burglaries have fallen from 1.79m to 785,000 (2013–14)8

1 AA Fuel Price Index.

2 Ford Escort GLS 16v 1.6 litre 5-door hatch (1994); Ford Focus Zetec S 16v 1.6 litre 5-door hatch (2014).

3 Source: Department for Transport.

4 Source: Driver and Vehicle Licensing Agency (DVLA).

5 Source: Society of Motor Manufacturers & Traders.

6 Halifax House Price Index as at 12 July 2004.

7 Source: Department for Communities and Local Government, (band D).

8 Source: Office for National Statistics.

All other sources: AA.

AA British Insurance Premium Index – archive

Car and home insurance news (download PDF)

2014 quarter 2
Car insurance premiums – biggest annual drop ever, 19.3% fall
Cost of home cover cheaper in real terms than 20 years ago


2014 quarter 1
Lowest car insurance premiums for three years
Flood claims fail to halt downward trend – home insurance remains "extremely good value for money"


2013 quarter 4
Another record fall as car premium plunge continues
Market average home contents insurance at a ten-year low


2013 quarter 3
Competition forces another record drop in car premiums for third quarter
Downward home premium trend continues for sixth successive quarter


2013 quarter 2
Biggest ever annual car insurance premium drop


2013 quarter 1
Legal reforms bring cost savings for car insurance
Home insurance premiums fall despite flood concerns


2012 quarter 4
Downward car premium trend masks car insurance gender extremes
Buildings and contents insurance see small rises


2012 quarter 3
Young driver premiums falling after two years of sustained increases
Washout summer brings home insurance premium increases


2012 quarter 2
Contrasting car premium movements for second quarter
Small premium falls for buildings and contents cover


2012 quarter 1
Annual motor premium increase 7.7% – smallest since 2008
Small premium rise for buildings, small fall for contents


2011 quarter 4
AA's benchmark Index shows 15% annual premium increase
Weather claims put pressure on home premiums


2011 quarter 3
Car premiums fall by just £2
Home insurance premiums still rising


2011 quarter 2
Car insurance increases ease, home premiums see slight fall


2011 quarter 1
Shoparound average for car cover jumps 40% in 12 months
Home insurance increases reflect record winter claims


2010 quarter 4
Shoparound premium increases by £210 in a year for car insurance
Cost of buildings cover reaches record high


2010 quarter 3
Young drivers hit in biggest annual premium increase
AA Index reveals big home insurance premium increases


2010 quarter 2
AA Index shows fraud pushes biggest car premium rise
Home insurance premiums moving up


2010 quarter 1
Temporary respite in car premium rises
Buildings insurance continues to rise, contents premiums fall



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