Car insurance premiums can cause headache for motorists (From The Northern Echo)

Car insurance premiums can cause headache for motorists

11:08am Tuesday 9th February 2010 in

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APART from the fact that they drive large vehicles, often at slow speeds along twisting roads with impatient drivers trailing in their wake, are farmers really entitled to enjoy better quality motor insurance than the rest of us?

Probably not. Yet the NFU (National Farmers’ Union) Mutual got the consumers’ vote as the most highlyregarded motor insurer – and home insurer – in Which?

Money magazine’s recent survey.

Selling also to many nonfarmers through a direct sales force and 300 local agents, NFU Mutual celebrates its centenary this year.

Which? Money’s other top providers, in descending order, are CIS, RIAS (launched in 1992 for over- 50s), Frizzell (working with teaching and public sector unions and leisure groups) and LV, formerly Liverpool Victoria Friendly Society, founded 1843.

In normal circumstances, the survey might not have attracted undue attention, but two surveys suggest the cost of car insurance is the next headache for many of Britain’s 36 million drivers.

Consumer Intelligence (CI), a market research firm, says the average premium for comprehensive cover is nearly £565 – up 19.6 per cent in a year. The car insurance bill for all motorists has jumped £2.1bn in the past year.

CI figures suggest premiums for 17 to 24-year-olds have surged by nearly 25 per cent in the past year.

The AA’s British Insurance Premium Index showed car insurance premiums rising at the fastest rate since its records began in 1994 – a third-quarter rise last year of 7.2 per cent for comprehensive cover could mean a 20 per cent plus annual rise in figures for the first quarter of this year.

One factor blamed for the rise is fraud, which adds £44 a year to every household’s insurance budget, and the rising cost of personal insurance claims as lawyers urge accident victims to chase compensation payouts.

One analysis recently suggested that so many people make successful low value personal injury claims – typically £3,000 for whiplash injuries – that drivers who don’t claim hand over vast sums to those who do.

However, AA spokesman Ian Crowder believes another reason for the rise is the search for the cheapest premiums on websites. The AA’s Shoparound Index of the cheapest quotes rose by more than 11 per cent in the past quarter of 2009 alone.

“We know people who shop around for cheapest deals will shop around next time, so companies think: ‘Why make an introductory offer to somebody who won’t stay and make a potential loss on their business?’” he says.

“The result is that premiums show a faster rate of increase on aggregator sites than across the market as a whole. Companies realise they can’t afford cheap deals any longer.”

Mr Crowder says the first quarter traditionally sees falling premiums for car insurance, as providers chase market share ahead of new registrations next month.

“But in 2009, for the first time I can recall, premiums rose, and another hefty rise is likely in the first quarter 2010”, he says. ‘‘We face 30 per cent more claims from the snow and ice of January, and claims are already rising markedly for pothole damage.”

Even with premiums at present levels, car insurance is a loss-making business. For every £100 paid in premiums, about £115 goes on claims and expenses (running the insurance company).

Mike Powell, analyst at financial researchers Defaqto, says: “Car insurers have not made a profit for about 14 years, and some pay out hand over fist.

“Now insurers must decide what to do. Small ones may pull out completely, while others will stay to use motor insurance as a way of getting profitable business in other sectors such as home insurance.”

Given the fierce competition on price, motorists are bound to ask: Is it worth paying more for better quality cover, or is price all that matters?

Mr Powell says: “Out of 240 products, about 40 get our fivestar ratings.

“Better quality policies offer a courtesy car during repairs, legal expenses cover which may be useful in reclaiming losses involving uninsured drivers, specific provisions for the replacement of child seats after an accident, and perhaps a replacement car for any vehicles badly damaged in their first 12 months.”

Adrian Webb, at esure and Shielas’ Wheels, says: “Thanks to websites such as Gocompare.com, which lists the largest number of motor insurers, the car insurance market is more transparent than ever..

“It makes sense to select car insurance on price, providing you are with a company you trust, and have a policy providing the benefits you need.”