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Fraudulent claims drive up the cost of car insurance

Car insurance premiums continue to rise

UK drivers were hit with another car insurance premium rise at the end of 2017. 

The average fully comprehensive policy rose 4% to £574.11 in the last three months of the year.

A rise in the number of fraudulent claims was a large contributing factor – adding an extra £50 to the cost of car insurance.

Which? takes a look at how much car insurance prices have increased by and why the price of your premium has gone up.


How much have car insurance premiums increased?

The average price of a fully comprehensive car insurance policy rose 4% from £553.28 to £574.11 according to data from MoneySuperMarket.com.

Drivers in Lincoln were hit the hardest with car insurance premiums rising 9.21% – increasing from £399.84 to £436.67.

Wolverhampton and Wakefield also saw hefty increases to the cost of car insurance with prices rising 9.11% and 8.74% respectively.

For some drivers, however, the picture wasn’t so bleak. Motorists in Sutton saw a 3.96% decrease in the cost of their premiums with prices falling from £628.32 to £603.45.

Preston and Guilford also saw decreases with premium prices falling 2.61% and 1.97% respectively.

Overall, the average cost of a fully comprehensive policy for women decreased 2.62% while prices dropped 0.5% for men.

 

Why has the cost of car insurance gone up again?

Three key factors contributed to the rise of car insurance premiums at the end of 2017.

1) Fraudulent claims increase

An increase in the number of fraudulent claims over has contributed to a rise in the cost of car insurance.

According to the Insurance Fraud Bureau (IFB), ‘crash for cash’ claims cost UK drivers £340m every year.

Crash for cash claims involve fraudsters deliberately colliding with other vehicles with the intention of getting a pay out from a car insurance provider.

The IFB recently published a list of the top 30 crash for cash hotspots in the UK. Birmingham topped the list making up half of the top 10 postcodes listed.

Overall fraudulent car insurance claims add an extra £50 to every car insurance premium – this is up from £13 in 2013, according to the Association of British Investors.

2) Reforms to the Discount Rate

Reforms to the Discount Rate last March have also nudged up the price of car insurance premiums.

The Discount Rate, also known as the Ogden Rate, is a calculation used by the courts to determine how much money insurance companies should pay out to people for personal injury claims.

Once a lump sum is calculated the Discount Rate is applied to take into account possible profits from investment.

In March 2017, the government reduced the Discount Rate from 2.5% to -0.75% which led to a sharp rise in the cost of compensation paid by car insurers.

This additional cost was passed on to customers – adding roughly £75 to the average car insurance premium according to PwC.

Although the government had since decided to partially reverse the decision – announcing in September that it would increase the Discount Rate to somewhere between 0% and 1% – it remains to be seen whether this will be passed on to drivers.

3) Insurance premium tax hike

An increase of the insurance premium tax (IPT) last year also drove up the cost of car insurance.

IPT is a tax levied on insurance premiums by the government. Insurers often pass this cost on to their customers by raising premium prices.

There are two different rates of IPT. One is a standard rate, which affects general insurance policies such as car insurance, home insurance and pet insurance.

The other is a higher rate for travel insurance, electrical appliances insurance and mechanical insurance.

IPT has risen four times since October 2015, doubling from 6% to 12%. Car insurance premiums have steadily increased as a result.

Rates From 1st June From 1st Oct 2016 to 31st May 2017 From 1st Nov 2015 to 30th Sept 2016 From 4th Jan 2011 to 31st October 2015
Standard Rate 12% 10% 9.5% 6%
Higher rate 20% 20% 20% 20%

What can I do to get the best car insurance deal?

For help finding the best car insurance policy, check out our newly released independent car insurance scores.

Which? experts have analysed the standard policies of over 30 car insurance providers and surveyed thousands of policyholders to generate an impartial scores to help you decide which insurer is right for you.

Have a look at our short video for more useful tips on how to find the best car insurance policy.

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