Motorists in the UK were hit with yet another rise in the cost of car insurance at the end of last year. During the final three months of 2017 the average price of a comprehensive car insurance policy increased by 4% to £574.11.
An increase in the number of fraudulent claims was blamed as a large contributing factor to the increases cost – with an extra £50 added to car insurance policies.
The new data comes from moneysupermarket.com, who revealed that the average comprehensive policy now costs £574.11 – up from the previous average cost of £553.28.
People in Lincoln face the biggest increase with premiums rising over 9% to now cost an average of £436.67. Both Wakefield and Wolverhampton also saw significant rises of 8.7% and 9.1% respectively.
It’s not all bad news for drivers though. Those in Sutton have seen a drop of nearly 4% in the cost of a comprehensive policy to £603.45. Motorists in Preston and Guilford will also pay less for car insurance, with decreases of 2.6% and 1.9% respectively.
What is causing the cost of car insurance to go up?
There are three big factors currently driving up the cost of car insurance for UK motorists: fraudulent claims, changes to the Discount Rate (regarding personal injury payouts) and increases to Insurance Premium Tax.
There has been an increase in the amount of fraudulent car insurance claims, which is having a direct impact on the cost of our premiums.
According to the the Insurance Fraud Bureau (IFB), so-called “crash-for-cash” claims cost UK motorists £340 million per year. These types of claims involve fraudsters deliberately colliding with other cars – or causing other cars to collide with them – with the intention of getting a pay out from the other parties insurer.
Overall, this type of fraudulent claim activity is costing every UK driver £50 on their car insurance premiums – which is up from £13 in 2013 according to the ABI.
Changes to the Discount Rate
Last years reforms to the Discount Rate are also contributing to increased car insurance prices. The Discount Rate, which is also called the Ogden Rate, is a calculation that courts use to calculate how much insurance companies pay out for personal injury claims.
When a lump sum payout amount is determined, the Discount Rate is applied to take into account any potential profits from the investment of the lump sum.
In March last year this rate was reduced from 2.5% to -0.75% by the government, which had the sudden impact of increasing the amount of compensation car insurance companies pay out to third parties for personal injuries. The extra cost was then passed on to customers, adding approximately £75 to the average premium according to PwC.
The government has since decided to change the Discount Rate to somewhere between 0% and 1% – but it remains to be seen whether any savings will be passed on to motorists.
Insurance Premium Tax
Insurance Premium Tax (IPT) is a tax added to premiums by the government, and has been increased four times since October 2015 – doubling from 6% to 12% in the process.
As with the costs associated with the Discount Rate reforms, car insurers tend to pass this tax on to customers in the form of increased premiums.
IPT has two different rates. The standard rate is applied to ‘general’ insurance policies like car, home and pet insurance. A higher rate is applied to travel insurance as well as insurance for electrical appliances.