Put the brakes on bills for car cover

CAR drivers are facing soaring premiums, as the motor insurance industry wrestles with big losses for the 14th year in a row. The pain will be exacerbated as best-buy websites, which have kept a lid on bills, become the next bubble to burst, warns financial market research company Defacto.

Losses are predicted to top 1 billion annually this year, mainly following soaring personal injury claims, fraud and bad weather, despite the numbers killed or injured falling to 143,000 from 206,000 in 2000.

Royal Bank of Scotland said its loss ratio for the first half of the year had crept up from 1.5 per cent to 13.3 per cent. Zurich saw a 30 per cent increase in bodily injury claims, which combined with inflation, pushed losses up by half. Last year RSA's losses reached 15 million.

But while claims continue to rise, the numbers of cars on the road is falling, making it hard for insurers to increase their profitability.

Report author Michael Powell said: "It is clear the market cannot continue to suffer on the scale seen over the last decade. It is likely some insurers will decide to withdraw altogether."

Defacto says this will cut competition, which will in itself send premiums soaring. But it further predicts many of the best-buy premium search engines will also disappear.

Powell added: "Although these sites are now the main providers of motor insurance, there are too many for the volume of business available. We envisage an aggregator crunch within two years and only those sites which have built their brands sufficiently will survive."

How can drivers cut their costs, while making sure they receive the cover they require?

Young drivers

Young motorists who are priced out of the market are increasingly opting not to buy. Yet the under-25s' accident record remains poor and deteriorating. Young male drivers are responsible for 30 per cent of casualties, up from 28 per cent in 2008. Young female drivers account for 20 per cent of casualties, down from 28 per cent in 2008.

The sector is also rife with fraud. Recent research claimed 41 per cent of parents were "fronting" their children's insurance even though they knew this was against the law. This is where the parent claims to be the main driver, when in fact it is their offspring's car. Insurers are entitled to refuse claims, cancel the policy and even prosecute the policyholder for fraud.

A more sensible tactic for making premiums affordable is to limit the mileage via a GPS satellite system. Young drivers are 40 per cent more likely to have an accident between 11pm and 5am. I-kube, in association with Motaquote and underwritten by RSA, offers young motorists a 40 per cent discount if they agree not to use the car between these times. They can still drive between these hours but are charged a flat fee of 45 for doing so. Insurethebox runs a similar system which limits annual mileage.

Adding a provisional driver can involve an eye-watering hike in parental premiums. A scheme, provided by Provisional Marmalade, allows a separate policy to be issued while the young driver is taught in their parents' car. Issued by Chaucer, it can be bought for one, two or three months and renewed as required.

Policy fees

More than two-thirds of policies now charge fees from adjustments and these have risen significantly in recent years. One in 14 actually charges a fee for setting up or renewing a contract.

So it is vital to study these additional charges when buying. The average adjustment charge is 21.77, 19 for a duplicate document, 37.44 for cancellation and 18 for renewal.

Monthly premiums

Drivers who opt to pay monthly for their insurance are charged for the privilege, and these charges are now rising. Most companies levy an additional 10 per cent, although the surcharge may be higher. More worryingly, information about the surcharge is not always openly expressed. If possible, pay annually, but where a monthly direct debit is put in place, make sure you know how much more it is costing.

In-car equipment

The cover provided for items such as DVD players, games consoles, flatscreen televisions and sound systems fitted in some cars differs markedly but is better than was available in the past.

However, non-manufacturer-fitted equipment is still rare, with only 13 per cent of policies offering this protection. If you carry such non-manufacturer extras make sure your policy will provide protection.

Satellite navigation equipment remains a grey area. Technically these could be classed as a personal belonging and should be insured under a home insurance policy.

Personal belonging cover remains poor on most motor policies, which will typically protect up to 100 or 200, which is unlikely to provide adequate compensation if mobile phones or handbags are stolen.

A few companies will go up to 500, and Saga has a 1,000 limit.

Child seats

More than half of policies do not cover child seats, which are now compulsory, and can cost hundreds of pounds to replace. Look out for a contract which covers them if you have small children.

No-claims discounts

Watch out for no-claims discounts. There has been considerable changes in the way insurers treat claims on these policies, and the number of claims which will be paid before the discount is lost.