The truth revealed: why insurance premiums are really rising

Queuing traffic

The Association of British Insurers (ABI) are once again blaming injured people for the rising cost of car insurance.

According to the ABI, car insurance premiums have hit their highest recorded levels ever and rose at more than five times the rate of inflation during 2016.

The overall average pay out for all types of private car insurance claims was £2,671 (this includes vehicle damage and personal injury).

Premium rises do not add up

Claims involving personal injury involve a higher pay out than the average – but these claims take into account death, catastrophic injuries such as brain or spinal injuries, and the awards are to cover all aspects of the claim, including rehabilitation costs, hospital treatment (repaid to the NHS), loss of earnings, prosthetic costs, aids and adaptations, as well as damage to the injured party’s property

Despite the huge range of cases where payments may be made, the cost of 'whiplash-related' claims was £536 million lower in 2016 than in 2013 according to data published by the ABI.

Is this a Brexit effect?

The average repair bill following a crash rose by nearly 32% in the past three years to £1,678.

The increase takes into account increasingly complex vehicle technology but is also affected by the rising cost of spare parts, due to currency fluctuations. Imported spare parts from continental Europe, Asia, and the USA have all increased in price with the devaluation of the pound against the dollar and Euro.

Is the road insurance market propping up losses from other insurance sectors?

The UK has the largest insurance industry in Europe and the fourth largest in the world.

According to the ABI, their Members hold £1.6trn invested assets. Insurers paid out £15million per day in property claims, of which £8.1m was for domestic claims and £6.9m related to commercial claims.

One might be forgiven for thinking that consumers in the road traffic insurance market are being held to ransom, to help possibly prop up the broader UK property insurance market, which made an underwriting loss for the first time since 2010.

Since the budget in July 2015 there have been three separate increases to insurance premium tax, which means that when the latest rise came into effect, on 1 June this year, the tax will have doubled from 6% to 12%.

Profits are soaring within the insurance market

Share prices for a number of the ‘big players’ in the insurance market have soared.  Aviva's pre-tax profit rose more than 50% to £1.8bn in the year to December 31. Aviva Chief Executive Mark Wilson said that the group would raise the dividend payable to shareholders by 12% to 23.3p.

Direct Line posted a pre-tax profit of £278.8 million.

The Admiral Group have reported profits of £284.3 million.

Could the insurers increasing profits be the real cause for increasing premiums?

Personal injury claims are not responsible for premium rises

As Neil Sugarman of APIL says, ‘the evidence clearly shows that whatever is responsible for premium hikes, it is not personal injury claims. It is time to hold the insurance industry to account.’

Rob Cummings of the ABI recently said it called on whichever party wins the election to take steps to cut the cost of car insurance.

To really ensure value for money for those purchasing car insurance, steps would need to be taken to restrict profits or dividends for shareholders within the insurance industry and this is unlikely to be at the top of ABI’s agenda.