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Cost of young driver insurance
drops by 5.6%
30 July 2011
by Heather Ferrier
The AA's quarterly
insurance price index (IPI), a measure of the 'shop around' cost of car insurance, has shown that
young drivers (aged 17-22) can now expect to pay a little less for
their cover in view of a 5.6% drop in the IPI average cost of their
premiums.
Of
course, young drivers continue to pay much more for their car insurance
than more experienced drivers. The IPI average premium was £2,294, compared to an
overall average of £924.
Looking
at each gender separately, male 17-22 year olds pay £2,872 while
young women pay £1,671. Thus, currently, young women can expect
to pay 40% less than young men.
This
gender differential will cease for new car insurance policies arranged
after 21 December 2012 following the European Court
of Justice ruling to abolish the use of gender to determine premiums.
The
British Insurance Brokers' Association (BIBA) has estimated that young
women will pay 25-50% more for their car insurance after that date
while young men will pay around 10% less. While this arithmetic might
suggest that insurance companies will profit from the change, it needs
to be remembered that previous claims increase the premium and young
males are more likely to have made a previous claim.
In view of these high costs, some young drivers are electing to use
telematics monitoring of their driving style which can reduce the premium
substantially for safer drivers.
Taking
account of all age groups, the IPI did increase by 3.6% but this is a
much smaller increase than has been seen for two years.
Following
a 100% increase in the cost of car insurance over the last three years,
car insurance prices are now beginning to stabilise as insurance
companies' balance sheets recover from the losses of recent years.
Nonetheless, they remain more dependent on ancillary income (such as
that provided by referral fees from lawyers and credit car hire
companies) for profitability than is an ideal business model. As a
result, they are vulnerable to a referral fee ban, a development that
is now looking increasingly likely.
However
that vulnerability would be a short-term effect, as a referral fee ban
would reduce referrals of claimants to
uncompetitive service providers. The overall effect, then, would be a
reduction in underwriting costs on the longer-term.
The biggest cause of rocketing car insurance prices has been the
increase in the numbers of personal injury claims made following road
traffic accidents. Many of these cases are speculative or purely
fraudulent. Indeed, as we reported recently, insurance fraud has increased
by 9%.
The insurance industry is working hard to try to more effectively
identify insurance fraud and spends over £100m annually to combat
it. This expenditure in 2010 saved £919m that would otherwise
have been paid by honest motorists in their premiums if it had not been
detected.
Early in 2012, a new Insurance Fraud Unit, based in London, and a new
insurance cheats database will be set up, both financed by the
insurance industry (by members of the Association of British Insurers,
ABI).
The Transport Select Committee has also investigated the high cost of
motor insurance and will be re-visiting the issue of a possible
referral fee ban shortly.
Part of the problem has been the high cost of legal fees in injury
claims and the Government is currently progressing a Bill that will
abolish disproportionately costly success fees in no win, no fee cases.
All of these developments will help to contain the cost of car
insurance, a welcome development as fuel costs continue to soar.
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