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The 3 causes of the Car Insurance headache
The 3 causes of the Car Insurance headache

In October the AA reported that car insurance premiums had rose by 40% in 2010. This rise has effected everyone, none more so than the younger driver, who have seen average premiums rise by 51%. So what is causing this massive increase?

Sixteen years ago, the AA started compiling an index on car insurance rates, and these are the sharpest rises it has seen since then. Young male drivers are paying the most with the average premium now coming in at around £2500. “Young men are twice as likely to be involved in these accidents than young women.” said Simon Douglas, director of insurance at the AA.

Motorists can now expect their car insurance renewals to be higher than last year, which has caused many insurance companies to come under fire from consumers. But is this criticism fair?

A rise in personal accident claims, uninsured drivers and fraud are all costing the insurance industry around £3.5 Billion a year so this cost has to come from somewhere.

Insurance Fraud
Insurance fraud can come in a number of different forms. Some forms seem fairly innocent, whilst others are intentional. Criminals crashing their cars for cash, has been in the news recently where fraudsters will break suddenly, usually for no apparent reason so the victim will have no time to react and crash into the back of them. Once the victim has admitted liability, the fraudster will then launch personal injury claims for themselves and usually fictional passengers.

Fronting is a form of insurance fraud. This is where the parent of a younger driver will insure a car for the sole purpose of the son or daughter to drive it as a named driver. Also a recent survey by Money Super Market, showed that over 11 million drivers admitted that they would lie to their insurer to guarantee a payout.

Fraud costs the insurance industry £2 billion a year and adds £44 to every motorist’s premium.

Personal Injury Lawyers
It is estimated that 10% of every motor premium now goes to the legal profession. “It is a dysfunctional system – people have to ‘play’ the system as it exists.” SaidNick Starling, director of general insurance and health at the Association of British Insurers.

They found that while the average personal injury claim following a road accident was £2,430, insurers had to pay a further £2,100 in legal fees.

With ‘No Win, No Fee’ lawyer now advertising on every possible medium and the country facing some of the harshest spending cuts since the war, it is not surprising to see why so many people will take this route. Fair enough, claims where people have been badly injured and need the money to help them live are justified, but the problem comes from people who are claiming for imaginary whiplash and other ailments.

It is estimated that personal injury claims cost the insurance industry around £1 Billion a year, thus adding a further £40 to every motorist’s premium.

Uninsured Drivers
Unfortunately this is a vicious circle that has no end in sight.
The high cost of insurance is clearly a factor in the large number of young people taking to the road without cover, and of course the more uninsured motorists there are, the higher insurance premiums are pushed.

New technology in police cars, allows them to spot uninsured drivers in seconds with automatic number plate recognition systems. But with the fines for first time offenders usually only £200 and six points on their license, is enough being done to discourage drivers taking to the road without insurance? Apparently not, as there are now calls on the government to increase the punishment if drivers are found not to have insurance. Insurance company Direct Line asked 2000 of its customers what figure they would like to impose against these offenders and came out with an average figure of £900.Unless this circle is stopped, we could see yet further rises in car insurance premiums. It costs the industry £500 Million a year and adds £30 to every motorist’s premium.