Rocketing car insurance premiums – up 6.3 per cent in April alone – have added significantly to record-breaking inflation, according to the Office for National Statistics.
Apart from petrol, car insurance premiums are the fastest rising of the price categories monitored by the ONS, with the annual rise hitting 26.1 per cent. Car insurance is a relatively minor part of most household budgets, but the hike has added about 0.1 per cent to the 3.7 per cent annual rate of inflation overall.
The Association of British Insurers says that rising legal costs are "the main driver behind the trend in rising motor premiums". The ABI added: "This is not about how much insurers pay out in compensation to claimants – indeed, insurers want to pay compensation to claimants more quickly than the current system – but about spiralling legal costs.
"Such costs add around 10 per cent to premiums paid by all motorists. These costs must be reduced. Government figures have shown that, for personal injury claims under £10,000, for every £1 paid in compensation, a further 76p is paid in legal costs. And the smaller the claim, the more disproportionate these costs are."
For a long time private car insurance premiums moved little because of intense competition in the market. Premiums were kept artificially low, despite pressure from rises in the volume and value of "bodily injury" claims, particularly from whiplash.
This was taking place, however, at the same time as Department for Transport figures on the frequency of road traffic accidents were showing a fall. Fraudulent claims also led to insurers reflecting higher risk and costs in higher premiums.Reuse content