Analysis: Motorists’ love affair with low premiums is over, but legislation will help arrest spiralling costs

Motorists hardly need reminding that their premiums have been rocketing over the past two or three years..

Six years ago, premiums were pretty static. If anything, they were falling because of the fiercely competitive market. It was also a time when the price comparison sites were gaining ground, which kept premiums artificially low. But at the same time, industry costs were going up. In a trade magazine in 2005, the AA warned that premiums should be rising and if they didn’t the time would come when premium inflation would be in double-digit figures to compensate. That has happened, just when the recession caused insurers’ investment income to fall, leaving a glaring gap between premium income and claims payments. In fact, in 2010, for every £100 taken in premiums £123 was being paid out in claims – a situation which is clearly unsustainable.

So what’s to be done about the current situation? Already the Ministry of Justice has announced a range of reforms to the way that personal injury claims are made, including the way that success fees are paid and curbing cold-call advertising as well as referral fees. Last month, the new police Insurance Fraud Investigation Unit was formed. There are also proposals to allow insurers to access DVLA data which will cut “economy with the truth” when people taking out policies falsify their age, address and driving experience. Last year, the law on uninsured driving was strengthened – all of this will help to curb premiums.

Will David Cameron’s summit make a difference? Maybe not, but what it has done is focus attention on car premiums once again and should galvanise legislation to help manage some of the negative issues. It will without doubt, help the insurance industry to get its house in order, too.

• Ian Crowder is public relations manager for the AA.