Insurers fuel the misery with record rise in motoring costs

Drivers have been hit by a record increase in car insurance costs in the past year, data published today reveals.

Car insurance premiums soared by 40 per cent over the 12 months to the end of March, adding to the pain of steep increases in fuel pricess in recent months, according to the latest AA British Insurance Premium index.

Home insurance premiums have also reached an all-time high after the wintry conditions in December sparked a surge of claims relating to snow and ice damage.

But the biggest surge has been in car insurance premiums, which have posted a record annual rise. Premiums went up by 5.9 per cent in the first three months of this year alone, taking the average shoparound premium - the average of the cheapest quotes - to 892 a year.

Male drivers aged between 17 and 22 have borne the brunt of the increases and are now paying average annual premiums of 3,052, according to the AA, which warned that the premiums being charged for young drivers were no longer sustainable. Young women drivers typically pay significantly lower premiums than men, but the difference is likely to narrow when European Union rules coming into force in December 2012 outlaw insurers from using gender in pricing.

The rocketing cost of car insurance over the past three years has been fuelled largely by the growing burden of fraud and injury claims on insurers.

Simon Douglas, director of AA Insurance, said: "The record rises in fuel costs coupled with spiralling car insurance premiums is disappointing news and is making driving unaffordable for many, especially cash-strapped young drivers.

"This is leading to more people withholding information when taking out a policy or exaggerating personal injury claims to try to reduce their costs. But this simply piles on costs for insurers and results in yet higher premiums for honest motorists."

But Douglas predicted that while premiums will continue going up, they will do so at a slower rate than over the past three years. "I'd be surprised if they exceed 20 per cent over the year," he said.

Home insurance premium increases may begin to accelerate, however. The average annual shoparound premium for buildings insurance has gone up 13.6 per cent to 147.29 since the first three months of last year, while contents policies have jumped 5.5 per cent to 76.39 over the same period.The trend was less marked than expected, said Douglas, who pointed out that home insurance claims levels hit a record high over the winter.

"During December 2010 alone, insurers dealt with claims amounting to around 900 million for snow and ice damage and the AA's own experience saw a sharp rise in claims for burst pipes, ice damage to roofs and gutters and damage from melt water, compared with the previous winter."

Homeowners continue to benefit from discounts for buying combined policies, but higher fraudulent claims and more winter-related damage could see costs escalate in the coming years, said Douglas.

"Last year brought a number of flood claims in areas with little or no previous history of flooding, brought about by increased urban development and greater weather extremes.

"Insurers are concerned about this trend and are likely to seek to build their reserves to enable future claims to be met," he said.