Car insurance premiums rise by a third
There's more bad news for drivers with the cost car insurance rising by 33% over the last year, according the AA's British Insurance Premium Index. The hike will increase the average shoparound quote for a comprehensive policy £210 to a whopping £843.
The rise comes on top of increases to fuel duty, VAT and the additional 1% on insurance premium tax.
Simon Douglas, director of AA Insurance, said: "There has been no let-up in premium increases as insurers struggle against losses from 2009, when for every £100 taken in premiums, £123 was being paid out in claims. This has led to the biggest annual premium increases we have seen since the AA Index began in 1994."
The biggest increases are hitting drivers who buy third party fire and theft insurance. It rose by more than 70% over the year bringing the typical premium to £1,390. Usually purchased by young drivers of older cars, this type of cover is now often more expensive than comprehensive cover as fewer companies offer it.
Young drivers too have suffered the brunt of increases to comprehensive plans. Premiums for 17-22 year olds have risen by 15.1% over the year making the average shoparound quote £2,251.
For more read: 5 legal ways to cut your teenage driver's insurance bill
The sharp rises have prompted an official inquiry from the House of Commons Transport Committee.
Douglas said: "MPs at the inquiry learned premium increases have been fuelled by fraud; injury claims; exaggeration of claims; organised 'cash for crash' scams; uninsured driving and poor investment returns because of the recession.
"A sharp growth in the number of accident management and personal injury claim firms has helped to develop a hard-sell system in Britain that encourages people to claim, even if they have not suffered an injury," he added.
According to the Association of British Insurers, there are 108 fraudulent motor insurance claims detected every day, amounting to £1.12 billion year. However Douglas said this was "just the tip of the iceberg". He added that some estimates put the cost of fraud at £80 for every honestly purchased car insurance policy.
Invented by a Frenchman in 1954 and ironically introduced in the UK on 1 April 1973, VAT is an indirect tax levied on the value added in the production of goods and services, from primary production to final consumption and is paid by the buyer. Its levying is complex, with a number of exemptions and exclusions. For example, in the UK, VAT is payable on chocolate-covered biscuits, but not on chocolate-covered cakes and the non-VAT status of McVitie’s Jaffa Cakes was challenged in a UK court case to determine whether Jaffa Cake was a cake or a biscuit. The judge ruled that the Jaffa Cake is a cake, McVitie’s won the case and VAT is not paid on Jaffa Cakes in the UK.
Association of British Insurers
Established in 1985, the ABI is the trade body for UK insurance companies. It has more than 400 member companies that provide around 90% of domestic insurance services sold in the UK. The ABI speaks out on issues of common interest and acts as an advocate for high standards of customer service in the insurance industry. The ABI is funded by the subscriptions of member companies.