Discount rate cut to blame for ‘spiralling’ car insurance increases
New figures from Confused.com show that February’s Ogden discount rate cut has already played a large part in the rise of motor insurance premium costs, Insurance Age reports this week.
The cost of comprehensive car insurance has continued to rise during the first quarter of 2017, with the latest Confused.com Car Insurance Price Index, in association with Willis Towers Watson, reporting that motorists now face an average premium of £781.
According to the figures, comprehensive car insurance prices rose 16%, or £110, more than they were this time last year – and rising 3.5% in March alone.
Additionally, the cost of third party, fire and theft (TPFT) policies has risen sharply compared to the same period in previous years. Going up by 7.9% in the last quarter, the average quoted premium significantly increased by £103 to £1414 – an annual increase of 25.4%.
Based on price data compiled from almost two million customer quotes, the research noted that the government’s decision in February to cut the Ogden discount rate from 2.5% to minus 0.75% was a “key factor behind the sharp turnaround in the direction of rates”.
Stephen Jones, UK head of P&C pricing, claims and underwriting at Willis Towers Watson, said: “We have seen decreases every January in the last four years, even during the upward trend from mid-2014 onwards, which in the past seem to have been largely driven by price competition between insurers during the renewal season in order to meet volume targets.
“If it were not for the January reductions, the immediate impact of the Ogden rate cut would have been far more painful for motorists in the first calendar quarter.”
Regional differences can be seen throughout the country. Drivers in Greater Manchester and Merseyside were worst off, with their insurance premiums rising on average by 3.8% to £1034. Drivers in Gloucester were hit by the highest quarterly increase in England, by 8% to £614. However, the biggest drop was seen in Galashiels in the Scottish Borders, which experienced a slump in average prices of 8.7% to £525.
Experts worry that we won’t see a fall in car insurance premiums any time soon.
Steve Fletcher, head of data services at Confused.com said: “As the industry adapts to additional pressures, such as the drastic Ogden rate cut and the hike in IPT to 12% from June this year, we could be on course to drive past the £858 peak we saw in 2011. As car insurance costs continue to climb, average premiums could even break the £1,000 barrier by next year.