There is bad news if you are concerned about the cost of insuring your vehicle because new figures show that the average premium has risen to around £500 a year and it is only going to get worse. In some cases a lot worse.
However, there are ways to protect yourself and those who are the biggest risk have the potential to get the biggest savings.
Here we explain what is going on, why premiums cost more and show you how to shield yourself from the worst of the increases.
1. What is happening to force up costs?
There are three main factors behind the rise in premiums. One has been a growing issue for a while, one is new and one is set to hit us later this year.
The growing issue is that modern cars cost a lot more to repair thanks mainly to a `replace, not repair’ approach. In fact, new trade data shows the average repair bill after a crash has rocketed by 25 per cent in just three years.
It is no longer a simple matter of beating out a dented wing or bonnet after a bump. A modern car is essentially one big crash-detection and protection device all linked into one by sensors and structures working in sequence.
A spokesman for the Association of British Insurers said: “Cars are becoming a lot more complex and integrated so it is not just a simple matter of replacing one item.
“Let’s take a really simple example such as breaking a headlamp. Years ago you could nip down to Halfords and get a replacement for a few pounds but not now.
“Say your car has Daylight Running Lights, which a lot do, and a new unit has to come from the original car manufacturer because it is integrated into other safety systems; these things are more expensive but it is just a consequence of drivers wanting more technology in their cars.”
The new issue is the amounts courts award as lump sums to people who have suffered life changing injuries in a crash and which are designed to help them cope and adapt.
The money is there to support them but if it is invested wisely the recipient could actually `make’ more and get a bigger sum so the initial sum is reduced, or discounted. Since 2001 that rate has been 2.5 per cent but with returns on government bonds now showing negative figures once you factor in inflation the Ministry of Justice says it has to cut the discount rate to negative levels in response. It’s going to cost insurers around £3 billion and that will be passed onto us.
By how much remains to be seen – and it must be said that a consultation period between the government and insurance industry is due to deliver a final decision on this in May – but the worst case scenario could see an extra £50-£75 on an average comprehensive policy.
However, take a deep breath if you are in a high risk category such as the under-22s or 65-plus age groups where possible rises of up to £1,000 and £300 respectively being talked about by the industry.
The one yet to come is the rise in Insurance Premium Tax due from June 1 when the tax on every policy will go from 10 to 12 per cent. This means it has doubled from six per cent in just a few years.
2. What can you do to avoid the worst of the increases?
You have to accept that insurance will cost more. There are lots of ways to minimise the impact of this but many drivers either don’t know about them or don’t bother to pursue them and here we explain the potential savings they are missing.
- Shop around at renewal time and don’t leave it to the last minute. The insurance industry is fiercely competitive and they want your business so look around instead of just agreeing to another year, or auto-renew as the trade calls it, when your current insurer contacts you with a quote.
Loyalty is probably costing you money and according to market researchers at Consumer Intelligence, more than half of us could probably save up to £275 a year.
2. Ideally you should log onto a comparison website or contact your broker to begin the searches about three or four weeks before renewal, not in the last few days where you are getting into a `distress purchase’ position and have less room to negotiate.
3. The easiest way to get a lower premium is to prove you are less of a risk so each year you drive without a claim dramatically lowers your cost. The biggest savings come in the early years and three or four years bump-free could halve your cost.
4. You can opt to protect that NCB (No Claims Bonus) too in your next policy. It will add very little to the cost but means you still get the discount if you are in a crash and is definitely worth looking at.
5. Excess. The more you agree to pay towards the cost of repairs the lower the premium. If say, you agree to pay £500 or £1,000 excess, you should get cheaper cover. As with protecting your NCB the question you need to ask yourself is, how good a driver do you reckon you are?
6. TPFT or Comprehensive? Third Party, Fire and Theft covers you for just that. The third party element means your insurer will pay another driver if you are at fault in a collision. Comprehensive means your repair costs are covered too but don’t assume comp costs more than TPFT and do a comparison before choosing. Some insurers prefer someone keen to cover everything as it could indicate a more careful driver.
7. If you can’t pay it all at once, use a credit card rather than monthly instalments where the interest rate can be exorbitant.
3. Technology can work for you.
In simple terms car insurance reflects the risk you pose to yourself and others so if you can prove you are a safe bet it should be to your advantage.
There are two cheap and effective developments that a growing number of drivers – and some employees – are turning to, the dash cam and the black box.
- Dash cams do what they say on the tin and record your journey from start to finish so will show what happened before an incident. The data of cameras fitted with GPS includes your vehicle’s speed and position.
They can be mounted to cover the front or back view, their footage is admissible in court and can prove that a collision was not your fault.
They cost from around £50 to £175, can run on a small battery or be plugged into the car, and insurers are starting to reward drivers with them.
2. Telematics, or black boxes. These little recorders are wired into the car and measure speed and how aggressively you brake, accelerate, corner and turn the steering wheel and at what time of day or night you are driving.
The data is available to the insurer and they are extremely effective for younger drivers who are statistically the greatest risk relative to their numbers and who are particularly hard hit by insurers as a result.
Having a black box demonstrates you can prove you are a safe bet and you should expect a discount of at least 25 per cent if you have one, possibly more for a younger driver.