Car insurance costs climbed 7.2 per cent in the last three months of 2009, their biggest-ever quarterly rise, according to the AA's British Insurance Premium Index. Over the year, average motor premiums soared 18 per cent. The rise left the average comprehensive policy above £1,000 for the first time.
"There is no sign of premiums easing," warns Simon Douglas, director of AA Insurance. "We will continue to see increases over the coming year."
Last week Zurich said it will be increasing the cost of its premiums by a fifth in 2010 and there is likely to be more bad news for motorists ahead.
"Other insurers will follow Zurich's lead," says Will Thomas, head of car insurance at Confused.com. "Pricing has had to change due to a number of factors, not least the year-on-year increase in personal injury claims brought on by the new breed of litigation-savvy motorists assailed by ambulance-chasing injury lawyer adverts on the television."
Esure says it has experienced a notable increase in the number of drivers making false or exaggerated insurance claims. It says there has been a marked increase in people simply making up a theft or deliberately writing off a car to get a cash settlement. Others have been caught inflating claims by repairing completely unrelated damage on a vehicle such as repairs to expensive gear box systems or ad hoc electrical faults as part of a minor, unrelated collision. In short, people yielding to the temptation to cheat their insurer are costing us all in higher premiums.
There's another factor forcing up the cost of cover, according to Thomas. He says the trend of recent times when motor insurers were happy to cut profits to attract customers is over. "With increasing costs, that tactic is proving unsustainable, and many insurers are now looking for a new, more profitable way to do business which is being seen in an increase in premiums."
January and February are the most popular months for people to renew their car cover but with increased premiums across the board, playing different insurers off against each other is essential if you don't want to pay more than you need to.
Emboldend by our case study below – Sharon Alston saved two-thirds of the cost of cover – I decided to challenge my insurer's renewal charge of around £360. Five minutes on an insurance comparison site yielded a quote of £220, a third less. When I reported this to my insurer, it immediately agreed to match the lower rate.
"Anyone automatically renewing could be in for a shock when their quote comes through," says Thomas. "The only defence against this is to get online and shop around for the best price. Apathy is not an option for those looking for a good deal."
How else can you cut the cost of insurance? Cutting your mileage will reduce the price. "If you limit your mileage you can reduce your premiums," says Lana Clements of More Than. "It's even worth thinking about investing in a bicycle and using it for the shorter journeys that you have previously been making by car."
The next step is keeping your car safe. "Insurers look at the risk every driver presents, so you'll get a better deal if you can reduce that risk," explains Steve Sweeney, head of motor insurance at moneysupermarket.com. "By keeping your car off the road at night in a garage or on a drive you make it safer, meaning your premiums will come down."
By the same token, ensuring you have an alarm and immobiliser on your motor will help. Changing the terms of your cover can also reduce the bill. Agreeing to pay a higher excess – the amount of any claim you agree to pay – will reduce your premiums, although agreeing too high an excess will hit your pocket hard if you're forced to splash out hundreds after an accident.
Keeping an eye out for good deals is also worthwhile. On Monday, for instance, a new insurer – AXA Car Insurance – will offer up to 90 per cent no claims discount. "At a time when prices are rising sharply we felt that drivers with a proven track record deserved more," says Tina Shortle of AXA. However, you'll need to have been claim-free for eight years to qualify for the top rate of discount. Meanwhile, BMW Car Insurance is giving 52 days' worth of free cover with its annual comprehensive policies until the end of March.
Case study: 'I cut insurance costs by two-thirds'
Vet Sharon Alston, 39, from Somerset is expecting her first baby in June and has been thinking more than ever about ways to save money. So when it came to renew her car insurance this month, she decided to get another quote rather than simply accepting her current insurer's deal.
The result? She has managed to cut her insurance costs by almost two-thirds. "My car insurance has been creeping up for years but I had always just renewed with Aviva (formerly Norwich Union) as I assumed they would be giving me their best deal," says Sharon. "I really had no idea just how much more I was paying than I needed to. Frankly, I've been busy running my veterinary business and renewing the cover every year was the easy option. But I've recently sold the business and after using Confused.com to find the best insurance for a friend, I decided to check if I could get a better quote for me. The difference shocked me. I got the same insurance for just £360 rather the £979 I was quoted by my current insurer. I dread to think how much I've overpaid before."Reuse content