Car insurance premiums rise by a third
It has been revealed in the most recent data collected from 2018, that UK drivers have had their car premiums rise by over a third since 2015, with one of the main reasons that have attributed to this rise is a change in government policy.
Car insurance premiums statistics
The figures, compiled by comparethemarket.com this month, have shown that as a result of changes made to the Personal Injury Discount Rate as well as to Insurance Premium Tax, the cost of car insurance premiums in the UK has now risen by a staggering £208 for each driver in the UK in the past three years. In even starker figures, this means that it equates to a whopping £7.8 billion extra across the entire car insurance market.
Rising car insurance prices
In a period of just three years, car owners are now having to pay 33% more for their car insurance. Comparatively, in 2015, the typical car insurance policy price for a driver in the UK was approximately £551. Now, the average cost of the same standard policy is thought to be approximately £735 in 2018.
This increase in car insurance prices has particularly affected younger drivers, who already tend to have to deal with higher premiums due to their age.
In the same study conducted by comparethemarket.com over 56% of young drivers who took part in the survey stated that it was now becoming difficult for them financially to continue running a car.
Furthermore, almost half (49%) of young drivers who took part said that in order to help them with the overall costs of running their vehicles, they now required financial assistance from someone else.
Factors leading to car insurance premium increases
What has attributed to the dramatic change in the cost of car insurance in the UK? As briefly mentioned at the beginning of this post, the main reasons have been to do with changes in government policy on the Discount Rate and the Insurance Premium Tax (IPT).
The Discount rate
Experts believe that the change in the Discount Rate (also known as the ‘Ogden Rate’) has been one of the main reasons why prices have risen.
But what is the Discount Rate? This is the rate that courts use in order to determine the amount that insurance companies need to pay out for compensation claims relating to personal injury. The courts make the assumption that the claimant will invest in the lump sum and then subsequently earn a return from it. This return is deducted from the amount the insurer needs to pay.
In March 2017, the government made changes to the discount rate. It changed from -0.75% down from 2.5%. That means that the lump sum payout for personal injury claims increased, leading to a rise in the amount that insurers would be required to pay. This has led to a sharp rise in car insurance prices.
Insurance Premium Tax
The Insurance Premium Tax, also known as IPT, is the tax that is levied on insurers by the government. However, insurance companies factor this into the prices that are then paid by drivers, so this means if the overall cost of IPT increases, car insurance premiums increase too.
It is worth noting that there are two types of IPT:
- The standard rate: which is applied to policies such as car insurance, home insurance as well as pet insurance
- Higher rate: This applies to travel insurance policies, as well as those for mechanical insurance and electrical appliances.
There have been changes to IPT since October 2019: the standard rate has risen a staggering four times, having originally been 6%, and now reaching 12%. Consequently, car insurance premiums have increased.
How to find cheap car insurance
Whether you are looking for an individual car insurance policy or a fleet insurance policy, there are a variety of ways you can look at keeping the cost of car insurance premiums down:
- The time of year you decide to buy a policy can have a huge impact on the price of your premium. Research has shown that December tends to work out as the most expensive month, whereas February is usually the cheapest.
- Do not always go for the cheapest option available: always read the terms and conditions carefully, as you need to make sure you have adequate cover in the first place. If you don’t, and you end up needing to make a claim, you could end up in a position where you are not covered for the damage.
- Compare policies: it is always worth taking your time to compare a variety of insurers online to make sure you get the very best deal for you.