The soaring cost of insurance

22 October 2009

Car and home insurance premiums have rocketed in cost over the past year, as insurers try to mitigate their losses from fraud and bad weather.

Buildings insurance is now at its most expensive for 15 years, while car insurance is rising at its fastest rate since records began in 1994. The AA, which tracks the cost of premiums, says the rises are “unprecedented”.

For drivers, the rise in fraud, personal injury claims and uninsured drivers has seen average premiums leap by 14% over the past year, including a 5.6% rise in the past three months alone. A lack of competition for third party cover, meanwhile, means premiums are up by 17.6% over the year.

Most drivers will be affected by the rise in average premiums, as an estimated 89% of insurers have increased their premiums by more than £5 over the past quarter. Only 2.5% reduced them.

"Car insurers are facing fast-rising costs, reserves for paying claims are depleted and investment income has fallen, largely because of the recession.,” says Simon Douglas, director of AA Insurance. He believes that, as a result, premiums can only continue to increase – potentially by a total of 20%. 

Meanwhile, homeowners have seen the cost of buildings insurance rise by nearly 10% over the year, reflecting concerns about changing weather patterns and rising frequency of damaging storms. Although the cost of contents insurance has been falling, the AA reports that a rise in fraudulent claims by credit-crunched households has prompted a 1.6% bounce in the past quarter.

Douglas says sporadic severe weather events, such as localised flooding, is forming an increasingly disproportionate share of insurance claims costs. With concerns rising that more substantial flood defences and improved drainage systems are needed, again premiums look set to continue rising.

The worst hit

Young drivers are particularly suffering from premium rate hikes, and may also struggle to get cover at all, the AA warns. Third party, fire and theft premiums – which are typically bought by young drivers as it tends to be cheaper than comprehensive cover – is up 17.6% in cost over the year to an average quoted premium of £1,059.

Many insurers no longer offer this sort of cover and more than half won't insure under 20-year-olds, according to Douglas. “In addition, young drivers who shop around on the internet for their cover are least likely to remain with their first provider so companies are less likely to offer introductory discounts. With some cheaper insurers moving out of this market, the average quoted premium has increased."

Owners of upmarket cars are also suffering under the recession, as theft rates have risen sharply. Last year around 20,000 vehicles worth at least £600 million were stolen, and the AA reports that this number appears to be rising fast.

It’s not just rising premiums that are squeezing drivers. According to research, stealth charges are also on the up with compulsory excess payments 32% more expensive.

An estimated 81% of drivers have a compulsory excess on their policy – and with over one-in-five drivers claiming on their car insurance each year, insurance providers will now be making an additional £154 million more from compulsory excess hikes in the next 12 months.

Mark Monteiro, insurance expert at, which carried out the research, says: “Hiking hidden charges and exploiting consumers who don’t have the time or the inclination to scrutinise the policy small print is really sneaky in such a tense economic climate. Most people don’t even know that they could be hit with two excess charges in the event of an accident so this is an easy way to generate revenue.”

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