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Motor premiums hit four-year high

UK motor insurers are set to face a barrage of criticism following the latest rise of premiums to a four-year-high. This is likely to drive the persistent feeling of consumer mistrust towards insurance providers.

Recent data from The AA shows that average car premiums increased by almost £35 over the three months to December 2016, reaching a four-year high. According to the the group’s British Insurance Premium Index, the average shoparound quote for comprehensive car insurance rose by 5.8% to approximately £633.

Even prior to the rise motor premiums were already costly, hovering at around the £600 mark. Yet the latest figures indicate year-on-year growth of 11.7%, equating to an increase of around £66, which will leave more customers out-of-pocket.

Much of the blame has been attributed to the loss of revenues through a higher insurance premium tax (IPT). The tax is due to see another 2 percentage point rise in June 2017 – bringing it up to 12% – and customers are being made to pay higher fees to offset the rise. This is likely to drive the general feeling of mistrust towards insurers, and also encourage those bearing the brunt of the extra costs to act indifferently.

With regards to the latter, behaviors such as uninsured driving, “fronting” (when the named driver on the policy is not the most frequent user of the vehicle), and even fraud are likely to become more commonplace. Such actions continue to dog the private motor insurance industry, but there are ways of outmaneuvering an expensive marketplace, albeit illegally.

However, there is reason to suggest that the increase in premiums is justified in order to accommodate additional costs from other areas of the market: namely the cost of paying for claims and vehicle repairs. Customers should remember that their providers are essentially required to cover these costs, and in order to do so, this must be reflected in their pricing.

According to industry sources, the cost of accidental damage is rising fast and is becoming a bigger threat to motor policy price inflation than whiplash. Insurers are seeing around a 20% rise in the cost of average repairs for damage to their policy holders’ cars, with The AA reporting that accidental damage claims inflation is currently adding around £25 per year to the average quoted price.

Therefore while it may be easy to implicate insurers for their tendency to raise prices, especially for motor insurance – a compulsory insurance product – their prices are reflective of the movements in the market. The process is somewhat of a “chain reaction,” meaning that if insurers are to continue providing an adequate service and covering the expenses for claims and repairs, the rise in premiums will help alleviate costs and also provide an added cushion for any further increase in overheads.

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