If you’re a motorist, prepare yourself for a kick in the teeth. According to the Association of British Insurers (ABI), the cost of insuring your vehicle is rising at a record rate.
It says premiums have soared by 11 per cent in the past year, bringing the average bill to £484. Some people pay a lot more than that.
You may remember that insurance companies told people that they’d get cheaper premiums if the Government would just stop people suffering whiplash injuries from claiming compensation.
It hasn’t happened.
The industry has also recently touted its efforts to stop fraudulent claims – on July 7 the ABI announced that 2,400 worth £25m a week had been thwarted.
And yet still premiums are rising.
Why, then, hasn’t the reverse happened in the wildly competitive market that the ABI says we have?
Time to trot out some more excuses.
The first one of those is the increase in insurance premium tax, which the industry could have absorbed but has instead chosen to pass on to the motorist.
Then there’s the Government’s decision to cut what is known as the “discount rate” applied to accident victims’ compensation awards. This is where things gets a bit more complicated.
Payments to victims are usually reduced to take account of the returns they might get from investing their money (settlements are supposed to cover them for the remainder of their lives) via what is known as “the discount rate”.
But, because investment returns are, well, rubbish, the Government (for once) did the right thing and cut the discount rate to take account. As a result, victims are getting more.
Cue insurers screaming blue murder. Despite all that fraud busting and the reduction in the cost of low value whiplash claims they have benefited from.
The ABI has been urging the Government to introduce a new system for calculating awards that will skewer people who have been seriously injured through no fault of their own. The Ministry of Justice has consulted but a decision has yet to be made.
Here’s the thing: There have, over the past few years, been other reforms to how compensation awards are totted up in the industry’s favour. They did not result in appreciably lower premiums.
And, as Brett Dixon, president of the Association of Personal Injury Lawyers, anyway says: “It is scandalous that the blame for the mismanagement of the discount rate is being put at the door of seriously injured people.”
There is of course, another explanation for the rising cost of premiums, one that the ABI doesn’t want people to talk about. It is that the industry isn’t sufficiently competitive to force them down.
The ABI would argue that there are lots of insurers out there, all furiously competing. Look at all those brands!
But it’s not quite as good as it looks. Many insurance companies trade through two or more of them. They also allow other firms, such as brokers, to sell their policies under their own names.
The number of companies that actually underwrite, and which control pricing, is actually quite small. According to a recent study by Capital Economics there are just nine of them in the UK.
It concluded that the savings the Government has handed to the industry through past measures designed to reduce its claim costs have simply served to fatten its profits.
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High price insurance premiums are causing a problem. They are leading increasing numbers of motorists to take to the road without any insurance.
All the evidence suggests that cutting the industry’s claims costs again, by finding ways to lower compensation awards, is not an effective remedy for that. More competition, however, would be.
If ministers really want to solve the problem – and it is a real problem – they should call in the Competition & Markets Authority.