The True Cost of Insurance

Driving is an expensive business with research revealing that in the last year the cost has risen at nearly three times the rate of inflation.

However, insurance is one of the primary reasons for the hike, with the typical policy now costing an astronomical 35% more than it did just two years ago. But what are the underlying causes for the rocketing premiums and are they justified?

Uninsured drivers often get the blame for the rises in insurance, but in reality they add only around £30 to the premium. Whilst there has been a reduction in the number of motorists driving without insurance, there remains an estimated 1.4 million uninsured vehicles on Britain’s roads. The latest study shows that West Yorkshire and the West Midlands have the highest incidences of uninsured drivers, holding 17 out of the 20 worst postcode districts in the UK for the offence.

Personal injury claims are a huge influence on insurance and companies have said the increase in the number of compensation cases are a very significant factor in the rising cost of insurance. The Association of British Insurers has said that despite the sharp rises in premiums, the car insurance industry has not been operating at a profit overall for 16 years and claims of this nature were one of the main reasons.

However, a particularly profitable racket has sprung up out of the personal injury claim culture, dubbed as ‘crash for cash.’ This involves accidents which are deliberately caused in order for individuals to submit an inflated claim for an insurance payout. Examples caught on camera include decoy vehicles being used in order to make an innocent driver swerve and cause an accident. Other apparent tricks used include removing brake lights to make it difficult to see the car stopping as well as flashing headlights to trick victims into thinking they are being given permission to pull out.

Industry experts have suggested that legal battles for compensation – for scams or otherwise – add an extra £121 to each insurance policy whilst fraud hikes the premium up by an average of £44.

But whilst every driver is facing an increased insurance quote, young drivers are by far the group with the heftiest premiums. When you hear that a fifth of new drivers have an accident within six months of getting their licence and an 18 year old is three times more likely to be in a collision that a 48 year old, it is perhaps not entirely surprising that insurance for this age group is the most expensive.

With insurance now stretching into thousands of pounds for higher risk drivers, rather than just a few hundred, coming up with the cash to pay for the cover straight away is not always possible. And whilst many insurers offer an instalment plan, extra administrative costs plus interest are usually added which bumps the premium up even higher. An alternative is to pay your premium off in full by arranging your own finance such as a Virgin credit card which may offer a lower rate of interest plus more flexibility in repayments.

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This page was last updated
Wednesday, 14-Dec-2011

The True Cost of Insurance