Car insurance premiums are at their most expensive point ever, according to a new report from the AA.
The average ‘shoparound premium’ for comprehensive cover has reached £690, the highest price since AA’s British Insurance Premium Index began in 1994. The shoparound price is calculated from the five cheapest premiums quoted direct from insurers, brokers and price comparison sites.
While the average comprehensive premium has risen by 20% over 12 months, the cost of third party, fire and theft quotes has risen by 25% in the same time period, to a high of £1,055.
Average cost by age
Drivers of all ages have seen insurance prices rises over the past 12 months. However, young drivers have been hit hardest by the latest price rise, and continue to pay the highest average premiums. Drivers aged between 17 and 22 are now quoted an average of £1,771 for a year’s cover, up by a staggering 42% since this time in 2016 — a difference of more than £530.
Drivers in their 50s saw the smallest price increase, but can still expect to pay around 6.2% more than this time last year. Those aged 60-69 are quoted the least for cover, at an average of £418 (up from £390 12 months ago).
Discount rate cut
Much of the increase can be attributed to the discount rate cut that came into force in March this year. Insurers’ injury payouts were previously discounted by 2.5% to account for claimants investing their compensation, but the discount rate cut reduced this to -0.75%. This significantly increased the cost of serious personal injury claims for insurers, and much of this cost has been passed on to consumers.
The past 12 months have also seen two increases to the rate of insurance premium tax (IPT) charged on premiums. In October 2016 the rate of IPT rose from 9.5% to 10%, with a further increase to 12% in June this year.
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