Insurance: Try boxing clever to keep a low premium

THE battle to keep car insurance costs down has gone up a gear after new figures showed a massive rise in premiums. The cost of car insurance rocketed by more than 11 per cent in the three months to the end of June, the biggest quarterly rise ever recorded by the AA British Insurance Index.

Premiums have already risen 30 per cent since January 2009 and Simon Douglas, director of AA Insurance, believes another 20 per cent will be added to that by the end of 2010, producing a 50 per cent increase in just two years.

Worst hit are young drivers, raising fears that many may be tempted, illegally, not to insure their cars at all. The biggest premium increases have been on third party fire and theft policies, typically bought by younger drivers with cheaper, older cars.

But the good news for younger drivers is that the way they drive could soon become a greater factor in premiums. Insurers are looking at using black box technology to measure driver behaviour, showing how hard drivers brake, how fast they go and how aggressively they accelerate.

Insure The Box is one such provider, offering drivers an initial 6,000 miles of cover with insurance for extra mileage paid for in 250 mile portions. The information from the small black box fitted in the car is used to help set premiums for the next year, with the most careful drivers offered bonus miles of free insurance. Coverbox is introducing similar policies later this year, with costs based on the way customers drive.

The scheme is especially beneficial for careful younger drivers hit with the biggest premiums because of insurer assumptions over their driving. Norwich Union — now Aviva — launched a similar scheme five years ago, but low take-up saw it withdrawn after three years. However, soaring premiums mean there is renewed impetus behind such systems, with AA president Edmund King last week calling for insurers to adopt more sophisticated pricing options.

Steve Sweeney, head of motor insurance at Moneysupermarket.com, said the comparison site experienced a massive response to the recent addition of Insure the Box among its insurance options.

"It took us by surprise and it shows the demand among younger drivers in particular. This could be the future of car insurance and there is a lot of interest around it at the moment," he said. "Provided drivers are comfortable with having the black box fitted in the car, this is the biggest solution to rising insurance costs."

In the meantime, however, it is increasingly hard for drivers to escape rising premiums, though there are ways of doing so.Here are some of the best:

• One-off premiums — This can cut up to 20 per cent off the total cost of insurance, when compared with monthly payments, which usually have a surcharge. The downside to this is of course having the lump sum with which to make a large one-off payment, but the savings can be significant.

Sweeney said: "One-off payments are not subject to an APR charge so if you can afford to make a one-off payment it will make your insurance cheaper."

• Shop around — The average comparison site premium has shot up in recent months, according to the AA, but they remain the best place to find the cheapest cover. As in many areas of personal finance, loyalty doesn't pay, because providers reserve their best prices to lure new customers. Shopping around the whole market when policies come up for renewal, through sites including www.moneysupermarket.com and www.confused.com, can produce significant savings.

• Pay a higher excess — This is the most obvious way to reduce premiums, with a voluntary excess payment of, say, 1,000, meaning the insurer may not have to be involved where the damage is minimal. However, you need to check if the insurer has already built the excess cost into the policy, to avoid paying both a voluntary and compulsory excess.

And bear in mind that should your car be written off in an accident, the higher excess paid at the outset means getting less back from the insurance with which to replace the vehicle.

• Drive safely — Careful driving and car maintenance can also bring costs down, not least by helping build up a no-claims bonus that could generate substantial long-term savings on car insurance. This is where driver behaviour technology can benefit careful motorists, said Sweeney. "This can help them get cheaper insurance quicker. If you know you drive carefully and to the rules of the road, it's your best bet."

• Car safety measures — Certain amendments to your car can lower your premiums. Fitting a car alarm is an obvious example, while immobilisers and tracking devices are also recognised by most insurers. Similarly, premiums are affected by where the car is parked each night, with reduced costs for those left in garages and driveways rather than on the roadside.

It's particularly vital to keep vehicles in good condition over winter to avoid falling victim to the kind of slippery condition collisions that sparked a massive rise in premiums during the wintry spells earlier this year.

For instance, check your tyres for air level and condition, make sure your lights and indicators work well and keep the anti-freeze topped up.