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What’s driving down car insurance costs?

Record drop in average car insurance quotes

Couple stood next to a car looking into the distance at dusk

Average car insurance costs have fallen by almost 10% over the past year to their lowest level since 2011, according to the AA. Which? explains why quotes have dropped dramatically.

The AA’s latest quarterly British Insurance Premium Index shows that the average quote for an annual car insurance policy has plummeted by a record 3% over the past three months and by 9.8% over the past year, to £594.86. 

This is the lowest premium since January 2011, although car insurance costs are still about double what they were six years ago.

Home buildings and contents cover have also both fallen significantly.

Car insurance costs – the winners and the losers

Hard-pressed motorists facing sharp fuel price increases will welcome the biggest fall in car insurance premiums ever recorded by the AA’s British Insurance Premium Index since its inception in 1994. 

The average quote for an annual comprehensive car insurance policy – based on the average of the five cheapest premiums from direct providers, brokers and price comparison sites; for a range of different ‘customers’ nationwide – fell from £659.53 in July 2012 to £594.86 .

All ages have, on average, seen significant premium falls over the past year but those aged between 23 and 29 have seen the biggest drop at 12.8% (down to an average of £738.93). The smallest fall was among drivers aged over 70 at 3.9% (down to £407.70).

Regionally, areas that have seen the highest activity from claims management companies have seen the biggest percentage drops: Granada 4.4% (to £909.08), followed by London at 3.5% (to £688.73).

If your policy is up for renewal, read our car insurance reviews.

What is driving car insurance costs down?

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.’

Mr Douglas said a ban of referral fees and other measures introduced by the Ministry of Justice, which has led to a reduction in the number of claims management firms, has also helped to cut costs

Have gender discrimination rules had an impact on premiums?

Following a European Court of Justice ruling regarding gender discrimination rules which came into effect last December, premiums for young men have fallen while those for women have either remained static or risen, although the AA say it’s by less than many had expected.

Mr Douglas said: ‘The background of falling premiums has helped insurers to more effectively manage the premium gap between men and women, although young drivers have fared least well. Some new and young women drivers will have seen a small premium increase, even after taking their no-claim discount into account.’

What about home insurance costs?

The AA found the average cost for buildings insurance cover fell by 2.6% over the quarter (5.0% over the year) to £130.45, while the quoted premiums for a typical contents insurance policy fell by 2.1% over the quarter (3.8% over the year) to £70.72.  

The average quoted premium for a combined buildings and contents policy fell 2.5% (5.8% for the year) to £175.78.

If you need to renew your home insurance policy, read our home insurance reviews.

Will insurance costs continue to fall?

Mr Douglas expects insurance premiums to continue falling as a result of a clampdown on fraud and spurious whiplash injury claims.

However, he added the motor insurance industry still faces many challenges, such as bringing down the high frequency and cost of crashes involving young drivers and uninsured driving.

Mr Douglas is concerned home insurance premiums may also come under pressure following an agreement between the government and the insurance industry on insurability of flood-prone homes.

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