Car insurance prices have fallen for the third consecutive quarter, new data shows, but could they rise again after the Autumn Budget next Monday?
Over the last three months, the average comprehensive car insurance policy fell to £484, down £9 from the previous quarter.
Since the beginning of the year, the average premium has fallen £19, from £503, according to the latest MoneySuperMarket Car Insurance UK Price Index.
But the good news may be short-lived – potential changes to the way that insurance companies are taxed following the Autumn Budget could result in your car insurance premium going up again.
Here, we take a look at why how much you pay for car insurance could increase following next Monday’s announcement and how to secure the best car insurance deal.
Why are car insurance premiums falling?
In 2017, car insurance premiums rose significantly over a short period of time.
This was largely down to two factors – the first involved reforms to the Discount Rate and the second was a hike in Insurance Premium Tax.
The Discount Rate
The Discount Rate, also referred to as the Ogden rate, is used by the courts to decide how much insurance companies are liable to pay in compensation for personal injury claims.
A lump sum is calculated and then the discount rate is applied to take into account possible profits from the investment.
Since 2001, the Discount Rate was 2.5%, but the government reduced this to -0.75% in March 2017 – effectively meaning the lump sum pay-out would be pushed up, rather than discounted. This led to a sharp rise in the amount of compensation that insurers had to pay.
The additional cost was passed onto customers, adding around £75 to the cost of the average home insurance policy, according to research from PwC.
Initially, this caused a spike in car insurance prices but as insurers began to recover from the shock, car insurance premiums began to fall again.
- Find out more: car insurance explained
Insurance Premium Tax
Insurance Premium Tax (IPT) is a tax levied on insurance companies by the government. It affects anyone who takes out an insurance policy in the UK, because insurers often factor IPT into the costs paid by customers.
This means that as IPT increases, so does the cost of your insurance.
The second is a higher rate which affects travel insurance, mechanical insurance, and electrical appliances insurance.
Since October 2015 the standard rate of IPT has risen four times, doubling from 6% to 12% and premiums steadily increased as a result.
The table below shows historical IPT rates.
|Rates||From 1 June 2017||1 Oct 2016 to 31 May 2017||1 Nov 2015 to 30 Sept 2016||5Jan 2011 to 31 Oct 2015||Up to 3 Jan 2011|
- Find out more: best and worst car insurance
Will the Autumn Budget 2018 increase insurance premium tax?
While the impact of the tax rise appears to have plateaued, IPT could be increased again next week Monday when Chancellor Philip Hammond presents the Autumn Budget 2018.
Mr Hammond has a challenge on his hands to help Prime Minister Theresa May fulfill her pledge to give the NHS an extra £20bn a year by 2023.
Increasing the IPT rate could be one of the ways he tries to raise funds by the five-year deadline.
The UK has the sixth highest rate of IPT in Europe since the standard rate was increased from 6% to 12% between November 2015 and June 2017.
As a result of the rise, households across the UK pay an extra £200 on average for insurance products, according to research by the Social Market Foundation.
The table below shows how much extra money has been added to the cost of average insurance premiums.
|Insurance Type||Added insurance cost|
|Comprehensive Car Insurance||£25.44|
|Combined buildings & content||£16.15|
The Chancellor has been urged to stay away from IPT by industry experts who argue that it makes customers pay more for being responsible and opting to take out insurance cover. The Association of British Insurers has relaunched its #IPTsUnfair campaign in an attempt to stop the government from increasing rates further.
- Find out more: no-claims bonus explained
The £2bn car insurance trap
Millions of motorists are finding themselves ‘trapped’ in their car insurance policy by failing to switch provider.
An estimated 19 million people across the UK stick with the same provider instead of shopping around, which costs an estimated £2bn extra a year, according to new data from Comparethemarket.com
On average, motorists could save an average of £113 a year if they shopped around for a car insurance policy.
The table below shows how much drivers in each age group could save on car insurance by switching to a new policy.
|Current annual car premium||£1,516.60||£1,099.98||£837.37||£635.16||£490.83||£378.73||£307.23||£486.31|
|Annual savings if you switch||£326.05||£171.55||£125.72||£88.99||£66.38||£46.05||£30.81||£52.46|
- Find out more: how to renew your car insurance
How to find the best car insurance
Shopping around for a car insurance policy can help you save hundreds of pounds. Avoid going for the cheapest deal without making sure that you’ve read the terms and conditions to make sure you get the level cover you need.
Another thing to bear in mind when looking for a policy is the quality of customer service, which can make all the difference when it comes to making a claim or getting your queries resolved.
To make finding the best car insurance easier, we’ve combined Which? expert analysis of over 30 car insurance policies along with feedback from thousands of policyholders to produce independent car insurance reviews.
You can also find more useful tips in our car insurance advice guide and the short video below.