Car insurance premiums fell £100 between December 2018 and February this year after a new act was passed in December designed to tackle whiplash claims.
From April 2020, the Civil Liability Act will introduce a tariff on damages for whiplash claims, while the small claims limit for road traffic accident cases will increase from £1,000 to £5,000.
The government hopes the reforms will help tackle the wider compensation culture surrounding whiplash claims and reduce the cost of premiums to motor insurance policy holders.
The impact has been immediate, with insurers passing the reductions in costs straight on to consumers according to comparethemarket’s Premium Drivers Index.
The index shows that in December 2018 the average insurance premium stood at £790 - the highest it has been since records began. However, costs plummeted in January and February to £727 and £690, respectively.
Comparethemarket says the reduction in premiums does not necessarily mean that there will be a significant reset of insurance costs in the coming months.
This is because government changes - such as hikes to Insurance Premium Tax (IPT) - will likely keep premiums comparatively high for the foreseeable future.
Premiums may have also fallen due to the recent decline in the number of car registrations – an indication that that car insurers were competing more heavily on price to keep winning customers in a shrinking market.
Dan Hutson, head of motor insurance at comparethemarket, says: “This is the first bit of good news for British motorists in a long time. Insurance prices have been on a relentless upwards march since 2012."
As part of the Civil Liability Bill the government agreed to reform the way the rate used to calculate payouts in serious personal injury claims - known as the Ogden rate - is set.
It is expected that a review of the rate later this year could further reduce premiums, going some way to counteracting the impact of IPT hikes.
Mr Hutson adds: “These reductions in cost follow recent changes to the law around whiplash claims, passed in December 2018 and due to come into force next year.
"This is also likely aided by the reduction in the number of car registrations in the past six months, which suggests that insurers are having to compete more to win a larger share of a smaller market.
“With the review of the Ogden personal injury discount rate now under way, there is hope for motorists keen to see further reductions of their premiums.”
The average premium fell to £736 in the three months to February, down from £744 in the previous quarter. The cheapest premiums available on the market fell by £9 to £619.
The gap of £117 between the cheapest and average premiums over the last quarter shows that shopping around remains the most effective way to save money on car insurance.
For younger motorists between the ages of 17 and 24, the difference between the two is much higher.
The average young person can save £263 by switching to a better deal, according to comparethemarket’s latest Young Drivers report.
The Ogden Rate you refer to is actually known as the 'Discount Rate'. When compensation is paid for future losses (for example when someone can no longer work and receive earnings) it used to be that the lump sum compensation would be discounted to take into account interest that the Claimant would accrue on their compensation. For example, when the Discount Rate was 4.5%, a loss of £10,000 one year from now would be valued at £9,570, the difference being the assumed 4.5% interest accrued on the compensation between the date of receipt, and the date the loss would have occurred. However, the Lord Chancellor in her 'wisdom'(?) changed the Discount Rate to a negative figure (originally -0.75% and now -0.25%). This created the perverse situation that a Claimant who had lost £10,000 one year from now, had to be paid 'more' than they had lost i.e. £10,075. The underlying assumption is that Claimants are bad investors and will lose money. In effect, insurers were forced to not only pay Claimant's compensation for the losses they had incurred, but had to pay them additional amounts to cover the money they would squander. This ridiculous law passed by the Lord Chancellor had a significant impact on insurance premiums, but went largely unreported due to the technical nature for the ruling.