* Jeremy Gates looks at money issues and explains why many motorists are facing a shock bill when they renew their car insurance
Accident-prone young drivers and a surge in fraudulent claims are key factors behind the steep rise in motor insurance premiums which threaten to drive some motorists off the road.
According to the benchmark AA British Insurance Premium Index, motorists faced a startling increase of 11.5 per cent in the third quarter, based on the cheapest three quotes collected in its survey.
In the year to September 30, the cost of annual comprehensive cover jumped by 39.3 per cent to £792, the biggest annual rise ever recorded by the Index which began in 1994.
For third party, fire and theft policies, which is the best that many younger, riskier drivers can get, a 54.6 per cent jump produced an average annual bill of £1,097.
Young drivers face the stiffest increases because they generate so many claims.
Over the past year, the average cost of cover has jumped by 51 per cent for 17- to 22-year-olds. Even after shopping around, men of this age can expect annual premiums around £2,500, while women (less dangerous) pay £1,400.
AA Insurance director Simon Douglas said: “Statistics from the Department for Transport (2009) show that a third of men killed or seriously injured on Britain’s roads are under 25.”
He said: “Car crashes are by far the biggest threat to life among young people - considerably more than drugs or knife crime, for instance.
“These shock statistics underline why premiums for young drivers are soaring.”
Middle-aged drivers (40-59) have seen a 30 per cent surge in premiums, perhaps because many parents extend their policies to provide cover for children.
The pain for all motorists, said Douglas, has been intensified by price comparison sites which drove premiums so low that many companies lost money on car insurance.
“Five years ago we warned that sharp premium inflation would be the result of this competition but the recession is adding to the pain,” he said.
Today, insurers pay out £123 to settle claims for every £100 collected in premiums and the Government will push prices higher on January 1 by adding 1 per cent to insurance premium tax.
The AA thinks premium rises could continue in 2011, although the largest rises may already be factored in.
Meanwhile, few can predict when the bill for settling personal injury claims will level off as “no-win, no-fee” lawyers seek out accident victims to pursue their claims. One estimate suggests 30,000 fraudulent claims are paid out each year, adding an average £80 to the cost of each policy purchased.
New figures from the Association of British Insurers (ABI) from an analysis of 50,000 low value personal injury claims reveal an average compensation payout of £2,430 - plus legal fees of £2,100 a time.
A moneysupermarket.com report suggested in September that one motorist in every 20 aged under 35 has “staged” an accident to make a fraudulent insurance claim.
AA spokesman Ian Crowder said: “Ultimately honest motorists pay for this scam through rising premiums.
“The fact is that it is very difficult to clinically disagree when claimants say they have whiplash injuries, and on low value claims insurers know it is cheaper to pay up than to fight the case in the courts.”
Drivers now find themselves under growing pressures. How can they keep car insurance costs under control?
Online price comparison sites are a vital weapon. The AA figures show that comprehensive cover purchased from the cheapest three comparison site quotes averaged £592.08, saving £200, while third party, fire and theft policies on the same basis cost £764.77, saving £333 against average price.
Crowder adds: “Savvy folk use sites for research, and then go direct to an insurer to find their best price.
“Providers may strip out certain parts of a policy, such as windscreen cover, Europe cover, loan car provision, or legal expenses, to make the price competitive.”
At Tiger, a comparison site highly rated by financial data specialists Defaqto in November 2009, managing director Graeme Kalbraier maintained: “If your premium is over £500, it can be worth obtaining a quote over the telephone as well as through a price comparison site.
“These days insurance brokers have special schemes offering competitive rates; they are only available by phone, as the broker has to speak to the customer directly to quote the premium.”
In today’s highly competitive market, drivers also need to convince existing providers that they are open to better offers.
In my experience, the cost of renewing my policy dropped £35 when I said I had driven only 30,000 miles in five years.
Drivers can also save money by raising the excess (the limit of the bill they will pay themselves) on their policy, particularly when the valuation is relatively slow.
You may not actually be sacrificing much if you agree to pay an extra couple of hundred pounds in the event of a claim, in return for a lower premium and a better chance of preserving your no-claims bonus.
Sian Worthington, at moneyextra.com, said: “Insurers reap the highest returns when customers fail to look around.
“Get some idea of what rival firms will offer, and you can usually negotiate your own provider down.”
So, what can be done to help young drivers?
The AA’s Simon Douglas said insurers, road safety organisations and the Government must lead the drive for higher quality driving standards.
“This can partly be achieved through education, such as Drive Smart courses in safe and fuel-efficient driving offered by the AA Driving School,” he said.
“Courses are available free to at-risk new drivers through the AA Charitable Trust.
“In addition, the AA sponsors a new BTEC qualification in driving behaviour, and a new insurance product that rewards good driving is expected to be launched next year.”
Young drivers can also get cut-price insurance from car makers on new models.
For instance, Mini Financial Services has extended its offer of a year’s insurance from only £99 to buyers aged between 30 and 80 on new Mini Convertible and Clubman models registered by December 31.
Younger drivers, aged between 21 and 24, pay £199.