Sophie Spooner's car insurance was due for renewal this week. Having been with Tesco Insurance for nine years the Cardiff-based PR executive simply expected to be able to renew with the same company. But she changed her mind when she got their quote for the next 12 months.
"The quote was almost double what I paid last year," she says. "I understand that new laws are in place and that lots of fake claims have cost the industry billions, but why would Tesco double my quote? I would have understood if they'd kept it the same price and not offered a discount, but no. It seems long gone are the days you get rewarded for being loyal."
Last year Sophie was charged around £450. This week Tesco's renewal letter increased the price to £885.16. "The worst thing is that when I shopped around, I found a quote about £200 cheaper. When I mentioned this to Tesco, the best they said they could get my quote to was £811."
Sophie was fuming after speaking to the insurer. "I've been with Tesco for nine years, ever since I started driving, and this is the first year they have declined to beat a competitive quote. It is outrageous!"
Many others are in for similar shock. The latest AA British Insurance Premium Index revealed that the average premium for an annual comprehensive car insurance policy is now £892, a rise of more than 40 per cent over the previous 12 months. The rise is the biggest annual increase ever recorded by the Index, which has been tracking the quarterly movement of car and home insurance premiums since 1994.
The average quote for a third party, fire and theft policy went up even more, climbing 82 per cent over the year to £1,532.62. But that reflects the fact that it's typically young drivers who buy that type of cover, according to the AA. In fact many insurers no longer offer third party, fire and theft policies.
The reason for these soaring premiums is an increase in fraud and injury claims, coupled with the effects on insurers of years of relatively underpriced, competitive cover. Simon Douglas of the AA says: "More people are withholding information when taking out a policy or exaggerating personal injury claims to reduce their costs. But this simply piles on costs for insurers and results in yet higher premiums for honest motorists."
He adds, though, that insurers are still making losses despite the sharp rise in premiums. One estimate suggests the insurance industry has been paying out £1.20 for every £1 they received in premiums, which clearly can't be maintained. The situation came about because new companies entered the motor insurance marketplace and wanted to build up a big customer base quickly.
The simplest way to do that was to offer cut-price premiums. But that forced the rest of the market to follow the downward trend in prices in order to keep customers. In the short term, that was good news for consumers. In the long-term something had to give, and now we're all being forced to pay more while insurers seek to recapture some of their lost profits.
Young people are being hit hardest according to research published by Confused.com this week. Newly qualified drivers can now expect to pay around £2,000 or more to insure a small hatchback. This time last year the cheapest premium for a new driver insuring a Ford Ka for a year was less than £900. Now the best quote has soared to more than £1,900, the comparison site says.
Andy Goldby, director of underwriting and pricing at Direct Line, says a rise in the number of personal injury claims is having a massive effect on premiums. "More than £2.7m per day is paid to personal injury lawyers," he says. "A fifth of every premium goes to pay for whiplash claims. Add that to the £44 due to fraudulent claims and £30 to cover the cost of uninsured drivers, and it's easy to see why people are having to pay more."
Goldby says that for the average driver, around 20 different rating factors are used to determine their premium, the key ones being postcode, age, driving experience, no claims discount, previous claims' history and whether they have had any driving convictions. But he warns: "Do not be tempted to mislead the insurer about any of these factors, as they can easily be checked and your claim may not be paid if you have acted fraudulently when you bought your policy."
So how can you combat the rising cost of insuring your car? Aviva suggests: "If you can, buy online. Currently we're offering offering up to 20 per cent discount to buy your motor insurance online. Second, consider adding your spouse as a named driver. Though it sounds counter-intuitive, you should get a discount."
Tesco advises: "Watch your mileage! Try to be a bit sparing with the number of trips you take in your vehicle if you can and be aware of the number of miles you do each year, as higher mileage may mean an increase in premium."
The insurer also says it's a good idea to fit a security system and mention it when you seek a quote. The same goes if you keep your car in a garage.
Direct Line says it's a good idea to look at the excess, the amount of money you are willing to pay in the event of an accident. The more you're willing to pay, the lower your premium. You should also ask if there are there any mandatory excesses for accidental or malicious damage. Many policies have a compulsory excess and sometimes a voluntary excess.
"Find the best type of policy for you," says Tesco. "Look for specific cover that applies to your lifestyle. For example, if you drive regularly on unmade roads you may want to ensure you have windscreen cover as standard on your policy."
If you have two cars, you could consider eliminating the courtesy car cover (if you have it), as you'll still have a car you can share if you lose the use of one of them. Incidentally, if you do have a second car, Aviva gives 15 per cent discount for each additional car you insure with it.
You could also cut premiums by changing your vehicle – especially if your current car is in a high insurance group. Higher performance vehicles cost more to insure as they're more attractive to thieves. So if you are about to buy a car it is worth looking at choosing one in a lower group.
Finally, if you can, pay your premium all in one go. That way you'll avoid insurers' finance charges.
A happy ending: Driving down costs
After The Independent's intervention, Sophie Spooner got a more affordable quote from Tesco and has now renewed with the insurer. Tesco said: "We are sorry that Ms Spooner was disappointed with her renewal quote and the explanation given to her during her first call.
"During the policy term Ms Spooner changed her vehicle from a Volkswagen to a Lexus and added an additional driver. Therefore, comparing the original premium against the renewal isn't comparing like-for-like.
"By making changes to reflect Ms Spooner's current needs we were able to reduce her premium. We apologise for the initial disappointment caused."
Cutting prices by cracking down on uninsured drivers
* A clampdown on uninsured drivers which came into effect on Monday, should help to cut the cost of car insurance for all. Since 20 June owners of registered vehicles must declare their car as being off the road if they want to avoid the need to buy insurance.
Before Monday, offenders had to be caught in the act of driving without insurance to be prosecuted. Now, registered drivers who are found to be uninsured will be sent a warning letter, followed by a £100 penalty.
If a car still remains uninsured, it can be clamped, or seized and destroyed, or the owner could be taken to court and given a fine of up to £1,000.
"The new legislation which came into into force this week should help drive down the number of uninsured drivers on our roads," says Peter Harrison, Moneysupermarket's head of car insurance.
"It also means all motorists need to be vigilant of their insurance renewal dates – especially leisure drivers or motorbike enthusiasts who only use their vehicles occasionally and let their insurance lapse in the meantime. They need to declare their vehicle as SORN (Statutory Off Road Notification) or renew their policy!"
You can make a SORN online at www.taxdisc.direct.gov.uk/EvlPortalApp or by calling 0300 123 4321. Either way you'll need to use the reference number shown on your V5C registration certificate, V11 or V85/1 reminder form.