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Why car insurance premiums are about to rocket By Hannah Ricci
Following price increases last month from the UK's largest insurer, Norwich Union, British drivers are faced with a switching conundrum similar to the one they have with utility providers. Norwich Union - known for its high profile The company, which provides motor insurance to one in every seven drivers in the UK, says it hiked rates because the money paid out in claims is exceeding the amount taken in premiums. According to the AA's British Insurance Premium Index, a price rise has been inevitable for some time because insurers are now paying out £112 in claims for every £100 they take from customers. Unfair on safe drivers? "Industry estimates suggest that this year the cost of claims has already exceeded premium income and this can't continue indefinitely," explains Kevin Sinclair, managing director of AA Insurance. "Premiums must rise sooner or later - and the later it happens, the greater the pain." Yet Richard Mason, director of insurance at Moneysupermarket.com, says the price hike is a "slap in the face for safe drivers" - who should see their premiums fall upon renewal if they haven't claimed. "High-risk drivers are hit with a rise of up to 35%, which is almost as good as a goodbye letter," adds Mason. "Norwich Union has dominated the motor insurance market for many years now, but this announcement of such a large price increase is a brave, if not foolhardy, move indeed - even for the largest car insurer." Outlook So what is the outlook for the rest of the industry? Well, the good news for consumers is that competition in the car insurance market remains intense and Mason believes insurers are unlikely to follow Norwich Union's lead at the moment. Insurer Admiral for example, has pledged not to increase its prices - although Admiral is well positioned to withstand pressure due to a marginal price increase last year. Better deals from smaller insurers The large, well-established providers are more likely to increase prices than the small, lesser-known firms. "Firms such as esure.com and swiftcover.com have lower operating costs than the big companies like Norwich Union and Royal Sun Alliance, which have to staff call centres and pay high rent on city offices," explains Mason. "This allows these newer, smaller competitors to underwrite business at a much lower cost and pass savings on to the consumer." Shop around Whether your motor insurance policy increases on renewal or not, it's still worth shopping around for a better deal. Insurers such as Privilege and esure are proving cheaper for drivers with several years of no-claims bonuses, and specialist providers like Sheila's Wheels and Diamond are competitively priced for female drivers. According to the AA, the average cost of a comprehensive car insurance policy is around £762.11, rising to around £995.29 for third-party, fire and theft cover. "It is now even more important for motorists to shop around when they are sent their renewal form," adds Mason. "As they could be in for something of a surprise."
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