UK Motor Fraud Raising Insurance Costs

A sharp increase in fraudulent insurance claims is helping to fuel a record rise in the cost of motor cover, according to the AA, the roadside recovery group.

A marked rise in the number of insurance claims, often involving soaring settlement costs, has also driven up premiums for household insurance as providers struggle to stay profitable, the AA said.

In its latest British Insurance Premium Index, the AA said that premiums for car insurance had risen by 7 per cent during the fourth quarter, the fastest rise since it began to compile records in 1994. The average annual premium for comprehensive car cover rose by 18 per cent over the year to just over £1,000, the AA said.

The average quoted premium for combined building and contents insurance rose by 8 per cent in the fourth quarter to £275 and was up by 10.8 per cent over the year. It predicted that the premiums for home and car insurance would continue to rise this year.
Although insurers traditionally hold their prices steady during the first quarter, last year they increased them for the first time since 1994. The AA said that the early evidence this year suggested that premiums were continuing to rise.

Simon Douglas, the director of AA Insurance, said that several factors were fuelling price rises, particularly in car insurance.

He said that drivers were far more willing to pursue claims, even for minor injuries such as mild whiplash pain. “This is encouraged by personal injury claims lawyers, whose marketing urges people to make claims and whose costs, as well as compensation for the claim, are met by the third party insurer,” Mr Douglas said.

A claims culture was becoming embedded in Britain’s psyche, he said. “In addition, insurers are suffering increasing fraud, which contributes to rising costs,” he said.

Last week, the National Fraud Authority said that fraud costs the UK twice as much as previous estimates. Industry bodies such as the Association of British Insurers (ABI) reckon that insurance fraud costs insurers about £2 billion a year and accounts for £44 of every household’s insurance budget.

“The situation is clearly unsustainable and the inevitable result is that premiums increase, despite the extremely competitive nature of the market,” Mr Douglas said.

For many insurers, the cost of claims was outstripping the income they received from premiums, in some cases by as much as 20 per cent, the AA said. This is forcing them to push up prices as their reserves become exhausted.

Even the AA’s Shoparound premium — its index of the cheapest quotes — rose by 11 per cent during the fourth quarter as insurers pulled their best deals to conserve capital and reduce their risks.

Over the full year, the AA’s Shoparound premium rose by 22.6 per cent for fully comprehensive car cover and by an unprecedented 33.4 per cent for third party, fire and theft policies.

“The sharp premium increases that the index is recording suggest that the cheapest deals and offers are drying up,” Mr Douglas said.

Customers of “best-buy” and price-comparison websites tend to be less loyal and will chase a new competitive quote at the earliest opportunity. This has led insurers to offer less generous deals in the knowledge that they are less likely to interest customers in renewal premiums, the AA said.

It also found that the recent snowy weather and icy conditions had led to a spate of collisions on Britain’s roads. Even though the underlying trend was for fewer accidents, claims levels over the recent winter period have risen by about 30 per cent, it said.
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