Car insurance premiums have been soaring for over a year, with industry experts failing to see any end in sight. In fact, the issue has become so pronounced that the government are now taking notice. In our latest Confused.com/EMB Car Insurance Price Index, we revealed that the cost of an average comprehensive policy had risen by 37.5 per cent in the last 12 months alone, with even more dramatic hikes for young drivers.
Now the government has intervened and this week (9 November) called together its Transport Select Committee to begin investigating the causes behind these soaring motor insurance costs. At the parliamentary session in the House of Commons, Confused.com gave evidence along with a handful of other industry experts, explaining what needed to be done to halt the increases.
So what is causing the price increases?
Speaking in front of the committee, Will Thomas, our very own head of car insurance, along with industry experts from the likes of the AA and the Association of British Insurers (ABI), outlined some of the major issues giving rise to the problem.
Claims inflation soars
Insurers claim that one reason they are being forced to hike premiums is a rapid increase in the number of claims. Despite cars becoming increasingly safer, and deaths and injuries on the road continuing to fail, the number of claims for bodily injuries such as whiplash has been increasing by as much as 30 per cent a year. As a result, this is adding around £100 to the average car insurance premium, according to the Institute and Faculty of Actuaries.
The cause behind this increase in claims has been attributed by many to the growing prevalence of claims management companies (CMCs), who offer to claim compensation for injuries sustained in previous accidents, often on a no-win-no-fee basis.
In Scotland, for example, where the activities of CMCs are restricted, it is estimated that the number of bodily injury claims is between 10 and 20 per cent lower. In light of that it seems no coincidence that the country saw some of the lowest increases in car insurance premiums in the last year, according to our most recent price index.
Legal fees 'hurting consumers'
In addition to rising claims, insurers are also citing high legal costs as another factor adding substantially to the cost of insurance. Ten per cent of every motor insurance premium is now going into the pockets of the legal profession, according to the ABI.
Again, this has been linked to the rise of claims management firms. As more people have used such companies to represent their claims, insurers argue that this has led to around 40 per cent of the cost of all claims going on legal fees. This cost is then, in turn, passed on to consumers on their car insurance premiums.
Fraud on the rise
Another factor that cannot be ignored is fraud. While this sort of crime is often expected to increase in times of economic downturn, the 14 per cent annual rise in insurance fraud reported by the ABI is particularly steep. As a result, honest motorists are being forced to cover much of the additional costs when buying their cover.
What can be done?
Insurers argue that a continuation of this trend is likely to lead to increased fraud and more drivers leaving themselves uninsured or underinsured as rates become more unaffordable. As well as the legal issues and costs to the government, this would also simply add further to the cost of the average premium as insurers are forced to pay out more to cover the cost.
This is precisely why the government has decided to look into the problem. Recent reports from Lord Justice Jackson and Lord Young have suggested ways in which the government could legislate to tackle some of these issues, potentially having a big impact on the amount insurers, and in turn consumers, have to pay out.
These include reforms to limit the impact of legal fees and curbs on the aggressive marketing campaigns of claims management firms. Whether these proposals will be taken on by the government and put into law, however, remains to be seen.
Confused.com's call to action
Confused.com is calling on MPs to take action to put an end to the hikes in insurance costs for consumers.
As well as encouraging the government to make the above reforms, we also want to see greater measures introduced to ensure that good, honest drivers are not forced to cover the bill for those who are reckless and dishonest.
Our proposals include:
Higher deterrents for uninsured drivers. At present, the punishment does not fit the crime. The penalty for driving without insurance carries a maximum fine of £1,000, though in reality those caught are more commonly given a fixed penalty of just £200. As this is far less than the cost of cover for many, the incentive to gamble remains too great.
More education and support for young drivers. Making the driving test harder and more relevant to being on the road today could decrease claims and allow the price of policies to fall. On top of this, we also need to do more to emphasise the consequences of dangerous driving, particularly to young people. This would not only cut insurance costs, but also save lives.
Review of the Pass Plus scheme. Pass Plus has become less valuable in recent years as insurers have failed to see the benefit in lowered risk. The government must re-assess this scheme and once again make it an attractive option that will incentivise good driving by lowering insurance premiums.
Improved data sharing. Insurers and groups such as the DVLA must communicate better to reduce instances of fraud and create an industry solution that will factor in the increasing number of people buying insurance online.
