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Home : Motoring Advice : Motoring Costs : Insurance Premium Index :

Insurance Premium Index

Car insurance premiums up; home insurance still offers value

Download the British Insurance Premium Index

Car insurance hits new high and rising

The latest figures from the AA's benchmark British Insurance Premium Index offer little relief for car owners as the upward trend in the cost of car insurance premiums continues.

Car insurance premiums took another sharp upward jump over the last three months of 2008, rising by an average of almost 1 per cent per month, according to the latest benchmark British Insurance Premium Index from the AA.

The average quoted premium for an annual comprehensive car insurance policy based on over 80 quotes for each 'customer' in a basket of 1,000 risks, has risen by 2.9 per cent since October to a new high of £741.66

The Shoparound premium, an average of the lowest three quotes for each risk, rose by 2.5 per cent over the same period. Index figures for third party, fire and theft insurance - which is typically bought by young drivers - rose by 3.4 per cent to £931.31 for the average quoted premium while the Shoparound figure rose by 3.0 per cent to £618.91.

Over the past year, the average quoted premium for comprehensive insurance in the Index has risen by 8.7 per cent while the Shoparound index, which is closer to the premium that buyers can expect to pay for their cover, rose by 7.2 per cent.

''We expect this upward trend to accelerate,'' says Simon Douglas, director of AA Insurance. ''Although the bank base rate has fallen and there is widespread price-cutting across credit-crunch Britain, the costs insurers face are rising fast. Personal injury claims and their associated legal expenses rose by around 22 per cent last year to about £6.16bn* and are expected to hit £10.9bn by 2012**. Whiplash injury alone represents around £66 for every car insurance policy sold.

''In addition, detected insurance fraud rose by around 17 per cent during 2008*. All this is added to the expected 6 per cent increase in the cost of repairing accident-damaged cars so the insurance industry is under considerable financial pressure.''

Simon Douglas adds: ''Capital is also scarce within the current economic climate and some insurers will need to respond by reducing the amount of capital they have tied up in their business. This will also put upward pressure on rates. ''However, competitive pressure should prevent the 20 per cent increase in premiums that some commentators have suggested we should expect over the coming twelve months. Nevertheless, I expect average quoted premiums to have risen by 10 to 12 per cent by this time next year.''

Simon Douglas also expects companies to become fussier about the risks they take on. ''For instance, we have seen some insurers pull out of the third party, fire and theft market which is dominated by young drivers. In fact, about half of the UK's insurers won't cover young drivers at all.''

*Source: Association of British Insurers
**Source: Department for Transport Road Casualties September 2007

View graph showing the premium changes for car insurance over the last quarter
View graph showing motor third party Shoparound premium trends
View graph showing motor comprehensive Shoparound premium trends

Home insurance stays competitive

Home insurance continues to show exceptional value for money, with many good deals still available, the latest findings from the AA's British Insurance Premium Index show. While the average quoted premium for an annual buildings insurance policy rose by 5.3 per cent to £218.04 with some insurers sharply increasing premiums, the Shoparound Index (an average of the lowest three premiums for each 'customer' in a basket of 750 risks) showed a fall of just under 0.7 per cent to £122.77.

The average premium quoted for contents insurance fell by 1.6 per cent to £122.98 while the Shoparound index dropped sharply by nearly 3.9 per cent to £67.14. Premiums for combined buildings and contents policies reflect these movements with a 1.5 per cent rise in the average quoted premium to £290.62 and a fall of 1.1 per cent in the Shoparound rate to £184.04

''These figures underline the fiercely competitive nature of the home insurance market.,'' says Simon Douglas, director of AA Insurance. ''We're continuing to see offers aimed at attracting new customers which has contributed to falling premiums but people should still shop around as these don't always represent the best deal. And while competition will continue to ensure great value for money over coming months, I don't believe that such discounting is sustainable in the longer term - indeed, there are signs that some insurers are beginning to increase their premiums.''

Simon Douglas points out that burglary and other crime usually increases during times of recession and that increased numbers of claims can be expected over coming months. "But, the industry must continue to offer value for money at a time when families are looking at their outgoings. It is important that they aren't tempted to ignore their insurance renewal, just when they may need protection most. "It's also vital that the industry demonstrates that insurance is about value and service, not just price. When you make a claim it is the wrong time to realise that you have sacrificed benefits in order to obtain the keenest price."

View graph showing the premium changes for home insurance over the last quarter
View graph showing buildings Shoparound premium trends
View graph showing contents Shoparound premium trends

* Shoparound was not calculated during early indices

View a graph showing the car and home insurance premium trend since 1994

Media contact: Ian Crowder, telephone 01256 492 844 or ian.crowder@theAA.com

Notes to editors

The AA British Insurance Premium Index has been tracking both home and car insurance premiums since July 1994 and has become an industry benchmark for measuring premium trends. The Index now tracks a basket of 1,000 motor risks (800 comprehensive and 200 TPFT) against premiums from 85 insurers, brokers and insurance schemes, and a basket of 750 risks for each of home buildings and home contents from 77 insurers, brokers and insurance schemes. In the case of motor insurance, where a provider typically offers the cheapest premium from a panel of insurers, the cheapest is tracked (rather than all of them), which provides a realistic comparison. The Shoparound premium is arrived at by averaging the cheapest three premiums for each risk.