How much will car insurance cost in 2012?

Saturday, 21 January 2012 11:51

By Kate Saines

When it comes to car insurance premiums, the last two years have seen the biggest price rises ever recorded.

In 2011 itself car insurance rose by 15.3 per cent, according to the AA’s British Insurance Premium Index.

And it would seem this upward trend is set to continue throughout 2012 thanks to a combination of tough financial conditions, insurance fraud and new gender discrimination rules coming into force this year.

Equal pricing for men and women

Yes, 2012 sees the arrival of the much-dreaded equality ruling which means insurers cannot use gender as a factor when assessing risk.

The difference in price for men’s and women’s premiums is currently vast – with young women paying as much as 40 per cent less than men according to the AA.

But the ruling will see women’s premiums rise to the same level as their male counterparts. This means we can expect some major hikes in premiums for female motorists when the rules come into effect in December, and possibly even before as the insurers start adjusting.

In fact the Association of British Insurers (ABI) said women under the age of 25 could see an average rise of 25 per cent to their premiums this year.

When announced by the European Court of Justice (ECJ) the news was greeted coldly by the insurance industry with the Association of British Insurers (ABI) slamming it as ‘disappointing’ to both consumers and the insurance industry.

Meanwhile the British Insurance Brokers Association (Biba) said insurers would no longer be able to use the exemption for insurance to base female driver premiums on statistics, which show they have lower accident rates and costs.

Its data shows the average 18-year-old male claim cost is £4,400 compared to £2,700 for the average female.

Graeme Trudgill of Biba said: “Male drivers under 21 are twice as likely to have an accident as a female under 21.

“The industry will have to change its model and effectively females will now pay a cross subsidy for males on their insurance premiums.”

Simon Douglas director of insurance for the AA said the gender discrimination ruling will have the biggest impact on car insurance premiums in 2012.

He predicts premiums will rise gradually towards December and after that there will be increases of up to 25 per cent for female drivers.

“The rule change will bring a major pricing shake-up that will particularly affect young women who, typically, pay premiums of 40 per cent or less than their male peers,” he said.

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Insurance fraud

But it’s not all bad news. A dedicated police insurance fraud unit has been launched this month. This, along with other initiatives such as plans to give insurers access to DVLA data, could play their part in helping to bring premiums down (albeit over the longer term) by getting rid of the fraud which creates price hikes for everyone.

And now there are plans to start tackling the rise of compensation culture, which is also having an impact on people’s insurance premiums.

Because despite the fact the number of car crashes is falling on Britain’s roads, the number of personal injury claims is rising. This is down to companies paying organisations with access to details of crashes money – or referral fees – to inform them when people have accidents so they can encourage them to make claims and take a slice of the money.

Simon Douglas explained: “Of course, those who are injured in crashes should gain access to justice and compensation for their injury. But too many people are claiming for minor whiplash that is almost impossible to clinically prove.

“The majority of drivers don’t make injury claims yet they are paying the price of those who do.”

He said the fraud detection initiatives such as the police unit will go a long way to bring the fraudsters to book.

And last week the Transport Select Committee published its report into the high cost of motor insurance. It cited the compensation culture as one of the factors influencing the problem, and put forward recommendations to the government to do something about this.

It wants claimants to provide more proof they have suffered whiplash injuries, and for insurers to be banned from selling information on policyholders. Whether this will have an immediate impact on premiums, or will take a while to filter through, remains to be seen.

Read more: Young drivers stung as average cost of car insurance rises to £971

Insurers’ losses

In the meantime the insurance industry is still making large underwriting losses and has depleted reserves, according to Mr Douglas, and this will continue to drive premiums up as we work our way through 2012.

He said: “I believe that towards the middle of the year, we will see premiums rising again although rather more modestly than in the past.

“If they don’t then we are simply storing up another severe price hike for the future.”

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Cutting the cost

There are of course ways, if your premiums start looking unmanageably high, to cut the cost in other areas. recommends paying your car insurance in a lump sum as opposed to monthly instalment. Analysis by the comparison website found those plumping for the pay monthly option could pay on average an additional 10.75 per cent more than the cost of the original premium.

It urges drivers to shop around for the best deal but also, if they cannot afford to pay their premium in a lump sum, to consider applying for a zero per cent credit card to pay for the policy – the cost of which can be spread interest free without paying the ten per cent extra.

Pete Harrison, car insurance expert at the website, added: “You need to be disciplined if you use a credit card, and pay off the balance before the end of the promotional period, and within 12 months if the promotion is longer otherwise you will still be paying when your insurance is up for renewal.”

And there are now insurance policies available which reward you, via reduced premiums, for good driving.

The telematics or ‘black box’ insurance system involves the installation of a device into your car which provides data to the insurer on how safely you are driving.

They measure speed, cornering and braking among other performance-related factors and those motorists driving well will see premiums falling faster than a no-claims bonus alone, says the AA which is launching its own version of the product shortly.

Simon Douglas of the AA said: “Systems of this type could become much more widespread, not just amongst young drivers, over the years to come.

“Some car manufacturers are starting to build telematic boxes into their cars and more will follow suit.”

He added: “But that’s for the future. For now we’ll see a lot of changes to car insurance that should, on the whole, bring benefits for most.”

Read more: How to avoid car insurance fraud

How much will car insurance increase by in 2012?

The insurance industry still has depleted reserves so the average male motorist can expect to see the cost of car insurance rise by between five and ten per cent in 2012.

For female motorists the outlook is worse. The new legislation means that female drivers can expect to see increases of ten per cent, rising to 20 per cent for younger female drivers in 2012.

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