Why your car insurance is still too expensive

MPs are angry at rising insurance premiums -- and so are we!

At the end of last month MPs told Britain's 34 million private motorists something they've known for a long time: the cost of car insurance is rising too fast.

This followed the Government's response to a special report published by MPs -- The Cost of Motor Insurance -- that identified numerous problems in the market for motor insurance.

A dip in premiums

First, some good news provided by The AA. According to The AA's latest British Insurance Premium Index (BIPI), the average premium for a comprehensive car insurance policy actually fell in the first quarter of this year.

At the end of March, the AA's average Shoparound quote -- based on the five cheapest premiums from a range of insurance companies -- had dipped by 1.1% to £1,132. For quotes from price comparison websites, there was a fall of 4.3% to £737.

However, the overall 'market average’ of all quotes in the AA's BIPI survey was unchanged at £1,452 for a year's fully comprehensive cover. So while a few insurers are lowering their premiums to attract new policyholders, others continue to raise their rates.

Despite this recent dip, car insurance is still more expensive than it was a year ago. In the 12 months ending 31 March, the AA's Shoparound index rose by 7.7%. This is its smallest yearly rise since 2008 and far lower than the record 40.1% yearly rise in the year to April 2011.

The problem with premiums

While this latest drop in prices is good news for Britain's hard-pressed motorists, the factors driving up premiums have not gone away.

The AA warns that rising levels of fraud persistently push up premiums. In addition, increasing numbers of personal injury claims are costing us more and more, despite a reduction in the number of crashes on Britain’s roads. As a result, industry costs keep on climbing at around 10% a year.

Therefore, MPs on the Transport Select Committee have suggested a number of improvements aimed at curbing the rapid rise in car insurance premiums. Here's what they have come up with:

1. A ban on referral fees

The government is already introducing legislation -- in the Legal Aid, Sentencing and Punishment of Offenders Bill -- to ban referral fees paid to insurers in personal injury cases.

Insurers can pocket surprisingly generous referral fees by selling claimants' details to solicitors, claims-management companies (CMCs), garages and credit-hire companies. The high fees charged by these ambulance-chasing businesses have caused a steep rise in legal costs.

2. Abolishing success fees

In some cases, injury claims are bumped up by success fees ('no win, no fee') and premiums for 'after the event' insurance used to cover the costs of going to court. Again, MPs want the Government to ban the recoverability of these extra costs.

3. Extending 'RTA protocol' claims to £25,000

At present, personal injury claims for under £10,000 are handled under an agreed 'road traffic accident protocol' which helps to keep costs down. MPs have proposed increasing this threshold to £25,000, so as to push more claims down this lower-cost route.

4. Reducing fixed fees

Many lawyers charge fixed fees for personal injury claims resulting from road traffic accidents. For smaller claims, these fixed charges of, say, £1,200 a time can add a disproportionately high amount onto payouts. MPs want a new law aimed at "reviewing and reducing these fixed fees."

5. Reducing whiplash claims

MPs agree that the cost of whiplash claims -- some of which are difficult to diagnose or are entirely speculative -- is rising far too fast. With modern vehicles the safest they have ever been, the number of whiplash claims should not be soaring.

MPs want to "work with industry and others to identify options and implement changes to reduce the number and cost of whiplash claims." In short, they want to 'raise the bar' for the evidence used to prove whiplash claims.

6. Tackling uninsured drivers

Thanks to the soaring cost of car insurance (especially for younger drivers), there are up to two million uninsured drivers in the UK. These thoughtless motorists are breaking the law, as it is a legal requirement to have a minimum of third-party motor insurance. Also, they add around £30 a year to each insured driver's premium.

MPs recommend that the Government "continues to tackle uninsured driving and fraud, by working with the insurance industry to have better access to drivers' records". This includes an ongoing project to provide insurers with real-time access to the DVLA (Driver and Vehicle Licensing Agency) database by early 2014.

In addition, MPs want a review of the fixed penalty notices (FPNs) for motoring offences such as speeding, mobile phone use and not wearing a seatbelt. This could lead to higher FPNs, particularly for repeat offenders.

7. Helping young drivers

For younger drivers, especially those aged below 21, the cost of car insurance can come in at thousands of pounds a year. Therefore, MPs want to "work to improve young drivers' risk and safety, including encouraging the growth of telematics."

Telematics involves installing 'smart box' technology into vehicles in order to monitor motorists' driving habits. According to Co-operative Insurance, its 'Young Driver' telematics scheme has produced a 20% drop in the number of accidents and a 30% drop in claims costs from young drivers.

As a result, young drivers with Co-op's telematics pay an average premium of £1,200 a year, which is half the typical premium. MPs are keen to see wider use of telematics. For more on telematics, check out The little black box that will cut your car insurance bill.

8. Improved privacy and data protection

Currently, insurers pass around our personal details willy-nilly, sharing data with almost any company looking to take a slice of potential claims. While the Information Commissioner can fine companies up to £500,000 for serious data protection contraventions, no fines on this scale have ever been levied.

As a result, MPs also want the insurance industry to fully respect current data protection legislation, backed by stricter penalties (including prison sentences) for breaching the 1998 Act.

In addition, MPs want to curb the endless cold-calling aimed at conjuring up personal injury claims via automated telephone calls, email spam, and SMS text messages. How lovely it would be if this horrible, intrusive hard-selling by CMCs were banned for good!

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