Car insurance premiums reach 'all-time high'

The cost of motor insurance premiums has reached its highest ever level, with the average quoted premium for comprehensive cover now exceeding £822.

That is according to the latest edition of the British Insurance Premium Index from The AA Insurance, which reveals that the index for car premiums rose by 2.5 per cent in the last quarter and is now more than twice the index quoted in July 1994, when the AA Index was first published.

Since 2006, motoring premiums have risen by more than six per cent, and show no sign of abating, while year on year, premiums have risen by 7.84 per cent.

The average premium quoted for third party, fire and theft (TPFT) insurance also rose by 1.32 per cent this quarter, to its highest ever level, coming in at £1,006.44.

Kevin Sinclair, managing director of AA Insurance, noted: There is still a large gap between premium income and the cost of claims so I’m not surprised to see the generally upward trend of the previous year resuming. I think this trend is likely to continue.”

Rival claims

While AA Insurance reported a 2.5 per cent rise in premiums during the second quarter of 2007, insurance comparison website Insurancewide.com posted contradictory figures which suggest that the average motor insurance premium fell by 4.6 per cent during the same period.

John Harrison, chief executive of the site, which powers the insurance search engines for Yahoo, MSN, Tiscali and other financial portals, explained: “Our motor insurance comparison service has access to all types of rates from almost the entire UK insurance market, all of which we draw from when we guide our customer to the most relevant insurer for their needs. The recent fall in average premiums in Q2 reflects the rates of almost every insurer and broker in the UK, including direct insurers such as Swiftcover.com and Its4Me.”

According to Insurancewide.com, the average UK premium for comprehensive car insurance in April was £738, falling to £703 by the end of June, and some of the direct insurers were the most competitive.

Shopping around

Regardless of which index provides a more accurate picture of the current motor insurance market, it is clear that comprehensive premiums remain a significant financial expense, and customers should ensure that they shop around for the best deal.

However, insurance comparison website Gocompare.com warned that drivers should be careful not to “compromise” on cover for the sake of price. The market is extremely fragmented with different levels of cover and a varying range of benefits, meaning that there are good deals available even if rates do go up.

While some insurance firms are cutting down the list of features included in standard policies to ensure the lowest possible premiums, others are adding noteworthy benefits, such as reduced excess levels, personal accident cover or legal assistance for little extra cost.

“Consumers are advised to shop around for the best price but then compare the cover levels carefully to find the best value,” said Hayley Parsons, managing director of the website.