Norwich Union lifts motor premiums by an average of 16%

Published on Friday 1 September 2006 00:19

NORWICH Union's decision yesterday to dramatically increase motor insurance premiums was only a matter of time, according to industry experts - but the level of the increase, by an average of 16 per cent, took many by surprise.

A spokesman for rival insurer Esure said analysts had expected a move for almost a year. "It is welcome that a very large player has come out so robustly and boldly as it has," he said. "I suspect there are many in the market waiting for this to happen and who will follow."

The move by Norwich Union, the firm that runs the "Quote Me Happy" marketing, comes only a day after it launched Simple Cover motor insurance, a fully comprehensive plan "without lots of add-ons that can affect a motor premium". Some said this was to deflect from criticisms that some policyholders would no longer be able to afford their existing cover.

Although the average increase announced by Norwich Union, which is owned by Aviva, was 16 per cent, high-risk groups such as young men can expect to see their costs soar by up to 40 per cent. At the other end of the scale, the majority of the low-risk, longstanding clients are likely to see a rise of just 6 per cent.

Even the bottom end of the rises are likely to court controversy. The rises will affect one in seven motorists.

Richard Mason, director of insurance at price comparison company moneysupermarket.com, said: "This is double the rate of inflation, which is effectively a slap in the face for safe drivers."

A spokeswoman for Norwich Union defended the decision, saying motor insurance was "unprofitable".

"Intense competition driven by technology has forced premiums down to an unrealistic level," she said. "We would expect to see a number of other companies following."

Annette Court, head of RBS Insurance, the UK's largest motor insurer through Direct Line and Churchill, said current prices were unsustainable and needed to rise but declined to say whether the bank planned to lift rates.

Analysts believe competition might keep Norwich Union's rivals from following its rallying call. That competition is heightened by companies known in the business as aggregators, which help consumers find the cheapest rates on the market.

The Association of British Insurers pointed out there had been no significant price rises in motor insurance since 2003.

"A rise in the number of staged accidents and subsequent false claims has pushed up costs by an average of 5 per cent and a rise in the number of uninsured drivers has further forced up cost by a similar amount," a spokeswoman said.

Cheaper insurance not always better

AN EVER-INCREASING rise in internet-based motor insurers has forced traditional insurers to try to curb spiralling costs as well as hold premium rates.

Buying motor insurance online is an easy option, but James Harrison, chief executive of Insurancewide.com warned that reduced premiums from internet-only services can often mean reduced insurance coverage.

The problem of cost has been further heightened by more than one million uninsured drivers in the UK, and this number is likely to get higher if insurance is priced out of the reach of so-called high-risk drivers - usually male and in their early 20s.