Car insurance costs increase 14% Premiums rise at their fastest rate for 15 years

24 October 2009

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Average quoted car insurance premiums have risen by 5.6% between July and September 2009 – equivalent to a year-on-year increase of 14%.

This jump in the cost of comprehensive cover represents the fastest quarterly increase since the AA began its British Insurance Premium Index in 1994. It also exceeds the previous record rise in costs, witnessed just a few months ago in the second quarter of 2009.

The cost of third party car insurance cover has increased even more sharply. According to the AA’s index, third party premiums went up by 9.3% in the three months to 30 September – representing an annual rise of 17.6%.

Car insurance quotes

The AA’s Index analyses quotes from over 90 insurance companies, brokers and schemes for 1,000 ‘customers’ nationwide. The average quoted premium for an annual comprehensive car insurance policy now stands at more than £821, compared to £778 in July 2009 and £721 in October 2008.

The Shoparound Index is intended to reflect what consumers might pay if they compared a range of insurance options and shopped around for the cheapest cover

It averages the cheapest three quotes found for each ‘customer’ in the Index, and showed a slightly lower quarterly increase of 4.8% in the AA’s latest report, bringing the average price of insurance up to £552.

Insurance for young drivers

However, young drivers seem to have been hardest hit by the increases. Third party, fire and theft (TPFT) insurance policies are typically bought by young drivers because, on a like-for-like basis, it is cheaper than comprehensive cover.

However, TPFT premiums rocketed by 9.3% between July and September 2009. They were up 17.6% over the year, with the average quoted price increasing to £1,059.

Young people who shop around for car cover saw a slightly smaller increase according to the AA’s Shoparound Index, with premiums up by 8.3% to an average of £725.

Rising insurance costs

Simon Douglas, director of AA insurance, commented: ‘Car insurers are facing rising costs. I estimate that across the industry, up to £110 is being paid in claims for every £100 taken in premiums – a situation that is clearly unsustainable.’

Mr Douglas blamed firms’ rising costs, depleted reserves and reduced investment income for the rises.

However, he also emphasised the financial impact of personal injury claims and car insurance fraud on companies.

Find cheaper car insurance

Dan Moore, insurance expert at Which?, said: ‘It is worrying to see car insurance costs increasing at such a pace, particularly when many people’s finances are already stretched.

‘The huge cost of car insurance for young drivers is of particular concern. With premiums simply unaffordable for some, the risk that they will take to the roads with no cover at all is magnified.

‘The AA’s Index does clearly show that shopping around for car insurance can cut the price of premiums – and consumers should bear this in mind. However, going for the cheapest policy available isn’t always the best move. Make sure you get a true Best Buy policy that offers the right amount of cover and is good value for money.’

The comprehensive Which? car insurance review is a great place to start if you’re looking to find great cover at the right price. It takes into account 5,287 quotes from 31 rigorously examined insurers, and features Best Buy deals specific to a range of age groups.

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