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Drivers face soaring car insurance costs
Drivers face soaring car insurance costs - MoneySavingExpert News
Motorists could face double digit price hikes in car insurance costs for the foreseeable future, experts have warned.
The average price of comprehensive motor insurance has soared by 40% during the past 12 months, with younger drivers seeing increases of 51% (see the Cheap Car Insurance guide).
The Transport Select Committee heard that insurance premium rises were being driven up by a combination of increased fraud, higher personal injury costs, a rise in claims management companies and the cost to the industry of uninsured drivers.
Duncan Anderson, of EMB Consultancy, told the committee the recent steep increases had reflected a "catch up" in insurance premiums following higher claims costs.
But he added: "If claims continue to rise at the rate that they have been increasing, rates will continue to increase as well.
"Bodily injury claims are increasing at a rate of 30% and other claims types are increasing by 5% an annum.
"Overall there might be a 15% to 20% natural increase in claims costs if things continue as they are, which will be reflected in ever increasing premiums."
Young drivers hit hardest
Edmund King, president of the AA, told MPs the current increase in premiums was "unsustainable for consumers".
He said the problem was particularly severe for younger drivers, who typically faced insurance premiums of £2,000 to £3,000 a year, often four to five times more than the value of their car.
He said: "If we do nothing costs will not increase as much as in the past 12 months as there has been a catch up, but we will see continued increases unless we take decisive action."
Insurance premiums have doubled since 2005, and Mr Anderson said the main driver was the increased cost of bodily injury claims, with both the number of claims and the cost per claim rising, despite the fact that the number of accidents in the UK has fallen.
King also warned that the high premiums had consequences for society, as young drivers may be tempted not to get insurance.
It is estimated uninsured drivers cost the industry between £400 million and £500 million a year which pushes the cost of cover up for everyone else.
Claims management danger
He said the country now had a "claims farming culture". The committee heard the number of claims management firms operating in the UK had doubled to more than 3,000.
There was also a correlation between areas of the country where there were particularly high concentrations of claims management firms, and areas where a high proportion of accidents involved personal injury claims.
Dr David Brown, of the Institute and Faculty of Actuaries, said the highest concentration of claims management firms was in the North West, where 40% of accidents involved a bodily injury claim, compared with just 25% across the rest of the country.
There were also high levels of the firms operating in Yorkshire and the North East, as well as in London.
He said London had seen the highest increase in both the number of claims management firms operating in the area and the biggest jump in personal injury claims.
When asked what could be done to help reduce claims costs, Anderson said referral fees, which are paid by and to personal injury claims firms, should be banned and fixed legal costs should be introduced.
'Ban ads'
There were also calls for claims management firms to be banned from advertising and cold-calling potential customers.
But MPs heard that as well as facing higher claims costs as a result of the rise in claims management companies, insurers were also benefiting from them, with the majority of firms receiving referral fees for passing on details of accidents to them.
Nick Starling, director of general insurance and health at the Association of British Insurers, admitted this was the case, but said the system was "essentially dysfunctional" and insurers recognised these fees must go.
John Spencer, chairman of the Motor Accident Solicitors Society, also warned that if referral fees were banned, claims management firms would simply take over solicitors' practices instead.
The committee also heard more needed to be done to tackle the issue of young male drivers, who are 10 times more likely to have an accident than drivers in their 30s and 40s, and their insurance premiums reflect this.
Drivers face soaring car insurance costs
Drivers face soaring car insurance costs - MoneySavingExpert News
Motorists could face double digit price hikes in car insurance costs for the foreseeable future, experts have warned.
The average price of comprehensive motor insurance has soared by 40% during the past 12 months, with younger drivers seeing increases of 51% (see the Cheap Car Insurance guide).
The Transport Select Committee heard that insurance premium rises were being driven up by a combination of increased fraud, higher personal injury costs, a rise in claims management companies and the cost to the industry of uninsured drivers.
Duncan Anderson, of EMB Consultancy, told the committee the recent steep increases had reflected a "catch up" in insurance premiums following higher claims costs.
But he added: "If claims continue to rise at the rate that they have been increasing, rates will continue to increase as well.
"Bodily injury claims are increasing at a rate of 30% and other claims types are increasing by 5% an annum.
"Overall there might be a 15% to 20% natural increase in claims costs if things continue as they are, which will be reflected in ever increasing premiums."
Young drivers hit hardest
Edmund King, president of the AA, told MPs the current increase in premiums was "unsustainable for consumers".
He said the problem was particularly severe for younger drivers, who typically faced insurance premiums of £2,000 to £3,000 a year, often four to five times more than the value of their car.
He said: "If we do nothing costs will not increase as much as in the past 12 months as there has been a catch up, but we will see continued increases unless we take decisive action."
Insurance premiums have doubled since 2005, and Mr Anderson said the main driver was the increased cost of bodily injury claims, with both the number of claims and the cost per claim rising, despite the fact that the number of accidents in the UK has fallen.
King also warned that the high premiums had consequences for society, as young drivers may be tempted not to get insurance.
It is estimated uninsured drivers cost the industry between £400 million and £500 million a year which pushes the cost of cover up for everyone else.
Claims management danger
He said the country now had a "claims farming culture". The committee heard the number of claims management firms operating in the UK had doubled to more than 3,000.
There was also a correlation between areas of the country where there were particularly high concentrations of claims management firms, and areas where a high proportion of accidents involved personal injury claims.
Dr David Brown, of the Institute and Faculty of Actuaries, said the highest concentration of claims management firms was in the North West, where 40% of accidents involved a bodily injury claim, compared with just 25% across the rest of the country.
There were also high levels of the firms operating in Yorkshire and the North East, as well as in London.
He said London had seen the highest increase in both the number of claims management firms operating in the area and the biggest jump in personal injury claims.
When asked what could be done to help reduce claims costs, Anderson said referral fees, which are paid by and to personal injury claims firms, should be banned and fixed legal costs should be introduced.
'Ban ads'
There were also calls for claims management firms to be banned from advertising and cold-calling potential customers.
But MPs heard that as well as facing higher claims costs as a result of the rise in claims management companies, insurers were also benefiting from them, with the majority of firms receiving referral fees for passing on details of accidents to them.
Nick Starling, director of general insurance and health at the Association of British Insurers, admitted this was the case, but said the system was "essentially dysfunctional" and insurers recognised these fees must go.
John Spencer, chairman of the Motor Accident Solicitors Society, also warned that if referral fees were banned, claims management firms would simply take over solicitors' practices instead.
The committee also heard more needed to be done to tackle the issue of young male drivers, who are 10 times more likely to have an accident than drivers in their 30s and 40s, and their insurance premiums reflect this.
