Record drop in car insurance premiums

Despite the recent fall, car insurance is still twice the cost of six years ago. Picture: PA

The cost of a typical fully comprehensive car insurance policy dropped by almost 10 per cent to £594.86 in July, AA Insurance said – the biggest fall since its index began 19 years ago. The figure for third party, fire and theft insurance also dipped in the past 12 months, down 4.8 per cent to £820.58.

Premiums have been rising steadily in recent years, driven by an increase in the number of “no win, no fee” claims against insurance companies – some of them deemed to be fraudulent – that were then passed on to the motorist. That is now being tackled by new rules.

The introduction of “gender neutral” pricing, after a European ruling that stopped insurers offering a different price to men and women, is also thought to have had an effect.

Despite the recent fall, car insurance is still twice the cost of six years ago.

Simon Douglas, director of AA Insurance, said: “Insurers were facing a fast-widening gap between premium income and claims costs, largely driven by whiplash injury claims and fraud which saw very sharp premium increases between 2009 and 2011.

“That gap is closing and premiums are falling again thanks to competition, as well as improved fraud detection by the insurance industry and tightening of the law that is beginning to curb the number of spurious new whiplash injury claims.

“The news that hundreds of rogue ‘no-win, no-fee’ claims firms have been reined in is welcome and, in part, falling insurance premiums reflect that.

“I hope Britain’s shameful reputation as being the ‘whiplash claim capital of Europe’ will now be put behind us.”

Earlier this week, data from the UK government’s Claims Management Regulation Unit revealed the number of claims management firms in existence had fallen by nearly a third, after ministers introduced measures to clamp down on the “no-win, no fee “sector.

The new rules, introduced in April, led to a ban on referral fees between lawyers and claims management firms and stopped companies taking fees from customers before a written contract had been agreed and signed.

Comparing this month’s figures with those of April, the AA said comprehensive insurance costs had fallen 3 per cent and third-party insurance was down 2.2 per cent. The latter is more expensive as it is usually chosen by younger drivers who tend to make larger claims.

Scotland saw the second smallest fall of all parts of the UK over the past quarter, with premiums slipping just 1.6 per cent to an average of £447.52. Only the West & West Country fared worse, remaining largely flat at £472.73.

People living north of the Border already enjoy the lowest premiums in the UK due to there being fewer accidents on quieter roads and also differences in the legal system that have made it more difficult – although not impossible – for drivers to make whiplash claims.

Across the whole of the UK over the past 12 months, car insurance costs have fallen for all age groups, with those motorists aged 23 to 29 enjoying the biggest decreases – their average costs dropped 12.8 per cent to £738.93.

All age groups have seen 12-month falls of at least 5.4 per cent, except those aged 70 or above who have had to settle for a 3.9 per cent fall in premiums. On average, those aged 60 to 69 have the cheapest annual insurance at £342.73, while those aged 17 to 22 have the most expensive, at £1,210.54 a year.

James Dalton, head of motor insurance at the Association of British Insurers, said: “We gave a public commitment at the motor insurance summit with the Prime Minister last year that introducing measures to strip out unnecessary and excessive legal costs from the compensation system would help to lower premiums.

“The government reforms to do this, coupled with the industry’s clampdown on fraudulent claims, are helping ensure honest motorists are getting the best possible motor insurance deal.”

Scott Kelly, of comparison website GoCompare.com, warned that premiums could fluctuate as motor insurers settle into the new system.

“There are major changes taking place in the insurance market at the moment with the switch to gender-neutral pricing and the changes in the law affecting claims firms,” he said. “Each insurer is having to interpret this changing market and create a whole new rate-book for each different type of driver.”

Critics of “no win, no fee” deals say they can encourage unscrupulous lawyers to take spurious cases to court in order to land huge success fees.

The system was introduced more than a decade ago to allow people to hire lawyers for certain types of civil cases, such as personal injury claims.

Solicitors are paid only if they win the case, and they are also entitled to a “success fee”.

But there were concerns that rogue firms had been seeking clients to bring inappropriate cases, sometimes taking a large proportion of any winnings.