Drive a better deal as insurers pump up their car premiums

Motorists already aggrieved at the price of petrol will find plenty to complain about in coming months as the cost of car insurance looks set to soar.

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Motorists already aggrieved at the price of petrol will find plenty to complain about in coming months as the cost of car insurance looks set to soar.

Even though the average cost of insuring a car has already risen by 20 per cent over the past year, premiums could rise by as much as 25 per cent over the next 12 months, according to the financial analyst Datamonitor.

Charles Crawford, technical services director at insurer Churchill, thinks that firms with a history of charging very low rates may find these unsustainable and be forced to raise prices by as much as 25 per cent.

But on the whole, many industry experts believe such an increase is unlikely. They argue that a rise of between 12 and 15 per cent is more realistic. The AA's quarterly index showed that premiums rose 5 per cent in the first quarter of this year, and it is predicting increases to tail off towards the end of the year.

"We expect the rises to slow as insurers return to profitability after making losses. And, because of the competition, they have to keep premiums at a realistic level," says Rebecca Hadley, spokeswoman for the AA.

Nevertheless, whatever the increase in prices, they will be felt by motorists who have been faced with spiralling premiums over the past few years.

Datamonitor puts these rising premiums down to industry competition. With the num- ber of insurers offering motor cover increasing substantially over the past six years, new players have tried to secure market share by setting very low premiums. However, this strategy, known as loss leading, is not sustainable indefinitely, which is why premiums are now rising so significantly.

The cost of claims, in particular those for personal injury, have also risen substantially over the past couple of years. Figures from the Association of British Insurers (ABI) show that the industry has lost more than £1bn a year since 1996 as claims have exceeded premiums. Consequently, prices are rising as insurers try to claw back some of these losses.

Given the steep increases in premiums over the past few years, it is hardly surprising that some people are cutting corners by not taking out cover. But the uninsured are pushing up our premiums. Worryingly, as many as one in 10 of us knows someone who drives without in-surance, according to a recent Mori survey for Direct Line.

According to the Motor Insurers' Bureau (MIB), uninsured drivers cost the insurance industry £400m a year. Claims against these people are paid for by those with cover: Direct Line estimates that about £30 of the average car insurance premium goes towards this.

While it seems as though motorists will have to accept higher insurance costs, there are measures that can be taken to minimise the amount you pay. Rather than automatically renewing the policy with your existing insurer, it is worth shopping around to see if you can get a better deal elsewhere. The AA estimates that most motorists can cut about 30 per cent off their premiums by doing this.

Churchill's Mr Crawford also suggests considering who is insured to drive the car and limiting the named drivers. "If you have 'just-in-case' drivers on the policy, it is likely to be far cheaper to take them off and add them as and when they need to drive the car," he says.

It may also be worth increasing the excess you pay on the car from, say, £100 to £200. Although Ms Hadley at the AA says that if you do this, it is important to make sure you can afford to pay £200 should you need to make a claim.

 

* Contacts: AA, 0800 605030; Churchill, 0800 200300; Direct Line, 0845 246 8888

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