Why car insurance premiums will continue to rise in 2020?
GoCompare Car Insurance says the cost of motor insurance is likely to rise in 2020 as insurers reflect higher claims costs.
An upsurge in theft – including keyless car crime, Government changes to the way personal injury compensation is calculated and record repair costs are key factors in pushing-up claims costs. Uncertainty surrounding Brexit and the weakened pound has also increased the cost of vehicle repair claims by increasing the cost of imported parts.
As a result, GoCompare believes that overall, car insurance premiums are likely to continue to rise throughout 2020. However, drivers shouldn’t accept their own premium rising as inevitable. The market for car insurance is highly competitive and substantial savings can be made by shopping around. On average, customers arranging their insurance through GoCompare Car Insurance saved £256.
Lee Griffin, CEO and a founder of GoCompare Car Insurance commented, “We’re expecting this year to be another challenging one for car insurers, with a perfect storm of factors coming together to put further pressure on premiums. In addition to rising claims costs, economic and political uncertainty, insurers may face regulatory measures to change their pricing practices as the Financial Conduct Authority publishes its report and remedies on making the car insurance market work better for customers.
“There are also concerns that as the Government seeks to raise revenue, the rate of insurance premium tax (IPT) charged on car insurance – which currently stands at 12%, could come under the spotlight again, with some experts fearing it could rise to 20% in line with other insurances and VAT. The rate of IPT has been unchanged since June 2017, and hopefully this year won’t be the year it is reviewed upwards again.
“Rather than just sitting back and accepting a bigger bill for their car insurance, motorists should shop around to find cover at a good price, that suits their needs.”
The five reasons why car insurance premiums won’t fall anytime soon:
Police recorded crime figures show a 3% increase in vehicle offences, mainly as a result of increases in ‘theft or unauthorised taking of a motor vehicle’ (up 7%) and ‘theft from a vehicle’ (up 2%). Vehicle related offences have been on the increase since 2015.
The vulnerability of some cars to keyless entry theft, where thieves intercept the signal between the keyless fob and the car, is of particular concern to insurers. According to the Association of British Insurers, claims for the theft of vehicles more than doubled from £42 million in 2013 Q3, to £88 million in 2018 Q3. More expensive cars are being stolen, increasing the average claim for a stolen car to over £8,000 in Q2 2018 (up £3,500 from 2013 when records began).
The Ogden discount rate is a calculation used to determine the amount insurers should pay as compensation to people who have suffered life-changing injuries so that it will cover all their predicted future expenses, including loss of income and care costs. However, because the compensation is paid in a lump sum, the amount is discounted to account for interest payments. Government changes to the rate further adds to the pressure on insurers’ costs, which will be reflected in higher premiums.
Advanced driver assistance technology systems such as automatic emergency braking, speed limit devices, blind spot and parking sensors help reduce accidents however, they are typically located in parts of a vehicle vulnerable to damage from impacts (i.e. bumpers and wing-mirrors) which makes repairs much more complex and expensive. Insurers pay-out over £12 million a day to repair damaged vehicles. The increasing use of sophisticated technology has also resulted in insurers categorising more vehicles as uneconomical to repair.
With economic uncertainty already causing a fall in the value of the pound, this has increased the cost of imported cars and replacement parts – further adding to the cost of vehicle repairs.
5. Insurance fraud
Despite insurers putting in place robust fraud detection systems and working with the police, motor insurance fraud remains a big issue. Insurance fraud (including providing false information on an application, false or exaggerated claims and ghost (fake) brokers) pushes up the cost of cover for all motorists. Industry figures on detected fraud show that car insurance scams are the most common and most expensive, with 55,000 dishonest claims worth £629 million detected. Most (80%) involved personal injury fraud ranging from staged crash for cash frauds to opportunistic scams.