Car insurance premium bills are at record highs but insurers don't want us to know the real reason why

Underwriters don’t operate in a truly competitive market and face no pressure to shield consumers from price rises

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The Independent Online

With figures showing car insurance premiums hitting their highest levels since since the Association of British Insurers started keeping records in 2012, it should come as no surprise that the trade body attempted to stomp into the General Election campaign. 

Like an old-school American evangelical preacher, puffed up with self righteousness, ABI assistance director Rob Cummings thundered that “whatever the outcome, the new government must push ahead with reforms to tackle low-value, whiplash-related claims and introduce urgent reforms to change the framework for setting the discount rate.”

Translation: the new Government should kick accident victims when they’re down by ensuring they either get no compensation (for whiplash) or less than they ought to receive by cutting that discount rate (which affects how awards are calculated).

Just as with those preachers, who always seem to have a skeleton or two in their closets, Mr Cummings isn’t telling you the whole story when he blames the 8 per cent rise in average premiums (they now stand at £462) on everyone but insurers while crying crocodile tears over “misery for motorists”.

Here’s why: car insurers and clothes retailers (several of which have recently reported results) might look very different but they both face the same problem: higher costs. 

Clothes retailers have been hit by the pound’s fall against the dollar because they buy their clothes in dollars. They have also had to deal with the sharp (and welcome) increase to the minimum wage. 

That’s not quite such an issue for insurers, which employ proportionately less low-waged staff. However, it is true that increasing the discount rate will increase the cost of claims (the impact of supposedly fake whiplash cases has been grossly over stated so I’m not conceding that point). Insurers have also been hit with a rise in insurance premium tax. 

As a result of these pressures, both insurers and clothes retailers are left with a choice. They can either absorb the costs, or they can pass them on. 

When it comes to the latter Next, for example, has chosen to increase its prices to maintain its margins; Primark, on the other hand, intends to absorb its rising costs. 

The important point is that you the consumer have a choice over how much you want to pay for your jeans or your hoodies or your T-shirts or your shirts. 

Don’t want to pay Next's higher prices? You have an alternative. Don't like Primark? You can get similar clothes at Sainsbury’s, or Asda, or Tesco, or Gap, or M&S or Uniqlo, even Lidl or Aldi if you’re prepared to wait until they appear on those chains’ infamous middle aisles. Still not satisfied? What about Asos, or BooHoo, or Jacamo, or Debenhams, or Amazon, or one of Arcadia Group’s portfolio of brands (if you can put up with buying from Sir Philip and Tina Green). 

There’s a reason I mentioned Arcadia, as will become clear.

When it comes to insurance you do not have this sort of choice. 

Click on to a price comparison site (and if you’re buying insurance you should) and it will certainly look that way. You will be confronted with a similarly bewildering array of brands, all selling much the same thing, but at different prices. 

However, the apparent cutthroat competition between insurers isn’t what it seems. Like retail group Arcadia (Topshop, Burton, Dorothy Perkins, Miss Selfridge, Wallis and so on) insurers like to sell through a number of brands. 

Unlike Arcadia, which has to compete with a huge number of rivals, there are, as a recent report by Capital Economics makes clear, just nine major insurance underwriters in Britain. 

It is insurance underwriters that are the arbiters of price and if none of them chooses to weather the impact of higher input costs (as Primark has but Next has not), you, the consumer, will suffer. 

This is the case now, as the ABI’s figures make clear. Instead of competing hard, driving efficiencies, even accepting lower margins, insurers have chosen instead to whinge and blame everyone but themselves for the price rises they are imposing. 

Needless to say if you ask them it’s all because of ambulance-chasing lawyers, evil, fraudulent drivers filing fake claims, and the Government. Nothing to do with the people that, you know, actually set the prices. 

The solution to the problem of higher insurance costs is not the Government’s damaging whiplash crackdown, which will hurt people who have been hurt, or to renege on the increase to the discount rate, which would also hurt people who have been hurt.

It is to push the competition watchdogs to force the industry out of its complacency. How about that as a manifesto commitment? 

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