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Premiums hit record levels – and there could be more ‘fuel on the fire’

Premiums hit record levels – and there could be more ‘fuel on the fire’

Premiums hit record levels – and there could be more ‘fuel on the fire’ There have been a host of reports over the preceding months, highlighting the latest car insurance premium figures. While there have been slight differences between the figures reported by the AA British Insurance Premium Index, moneysupermarket.com and others, there is an overriding theme – premiums are rising and they don’t look like coming down any time soon.

Now the latest to publish figures is the Association of British Insurers (ABI), indeed suggesting that premiums are now at record levels. However, it has also warned that there could be much worse to come.

According to the ABI’s figures, the average price paid for private comprehensive insurance during the fourth quarter of 2016 was £462 – beating the previous high of £443 set in the second quarter of 2012. It also represented a 4.9% rise on the previous quarter – that’s around £22 being added to the average premium.

The ABI suggests that the rise can largely be placed on tax hikes, rising repair bills and whiplash costs.

“These continue to be tough times for honest motorists,” said Rob Cummings, ABI’s assistant director and head of motor and liability. “They are bearing the brunt of a cocktail of rising costs associated with increasing whiplash style claims, rising repair bills and a higher rate of Insurance Premium Tax.”

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Breaking down the costs, it highlighted the following issues:
  • Tax: Since the Budget in July 2015 there have been three separate increases in the rate of Insurance Premium Tax, which means that the tax will have doubled from 6% to 12% when the latest rise comes into effect on June 01 this year
  • Personal injury claims like whiplash: The average bodily injury claim settled in Q3 2016 came to £10,674 - a 2.3% increase on the same period last year
  • Rising repair costs. The average repair bill has risen by nearly 32% in the last three years to £1,678 in Q3 2016. This is due to increasingly complex vehicle technology and rising cost of spare parts due to currency fluctuations
However, things may be about to get much worse, it suggested, due to a potential cut in the personal discount rate, currently set at 2.5%.

“While we support the Government’s further reforms to tackle lower value whiplash costs, it must not give with one hand and take away with the other,” said Cummings. “The sudden decision to review the discount rate has the potential to turn a drama into a crisis, with a significant cut throwing fuel on the fire in terms of premiums.”

The ABI expressed concern that the Ministry of Justice could be about to announce a new figure “based on an outdated method which doesn’t take into account how claimants actually invest compensation and risks pushing up insurance premiums.”

What do you believe is the real cause behind the constantly rising figures? Leave a comment below with your thoughts.

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