Fraud drives car insurance prices up by almost 33%

Published on Sunday 18 July 2010 15:49

CAR insurance premiums have rocketed, in some cases by almost 33 per cent, as companies counter the cost of fraudulent claims, motoring organisations said.

Drivers staging accidents to claim insurance or lying about personal details on price comparison websites have caused car premiums to rise way beyond the rate of inflation.

Fraud has forced insurance firms to increase charges at their fastest rate in 16 years of tracking, said the AA.

Premiums rose by at least 11.5 per cent in the period from April to June 2010. But customers expecting even better deals through price comparison websites were hit even harder, with a 12.5 per cent rise in just three months.

Third party, fire and theft (TPFT) cover bought on websites rose 17.1 per cent, according to the AA's "shoparound" index while in some cases the rise over the past nine months has been 32.8 per cent.

Insurers blamed fraud as well as legal costs which they claimed added 10 per cent alone to premiums but insisted they were trying to keep that down.

AA president Edmund King said fraud was on the rise, despite the latest British Crime Survey suggesting crime levels were falling.

He said: "There is an increase in staged accidents to claim large amounts of money for personal injuries. And people are playing with their own information on price comparison sites to get the best deal. People don't mind lying to a computer.

"So people are gambling like on fruit machines and what that means for insurance companies is higher risks so they lose profits and put up premiums. This quarter's increase comes on top of previous record rises. For those shopping on comparison sites, average premiums have climbed by an eye-watering 32.8 per cent - or 193 - in just nine months. Even those taking the cheapest prices have typically seen them rise by 98."

Mr King said those being hit hardest were young drivers, essentially being priced out of the market. They then increasingly risked criminal convictions and fines by driving without insurance at all, despite an increase in technology that identifies vehicles without insurance or valid road tax. "For young drivers, it's a very difficult situation. We have premiums going up, and enforcement going up.

"We have been putting pressure on insurers to not treat all young drivers the same. We need more radical thinking from insurance companies, and premiums more closely linked to post-test training and if companies would offer substantial discounts," he said.

The AA's index, based on the average of the cheapest three quotes, indicated that comprehensive cover went up by 11.5 per cent to an average of just under 704 in the last three months, with TPFT rising 15.9 per cent to just under 964.

Simon Douglas, director of AA Insurance, warned that premiums still had some way to rise.A spokesman for the Association of British Insurers agreed firms were facing rising costs, particularly due to personal injury awards and associated legal costs which added 10 per cent to premiums.