Insurance premiums rocket

  • Comprehensive insurance premiums rise by average of 11%
  • Fraudulent personal injury claims reponsible for increases
  • Biggest increases in premiums are for young drivers

Fraud is being blamed for fastest ever rise in car insurance premiums, according to a new report from the AA. 

Over the last quarter premiums rocketed by more than 11% - the biggest increase recorded by the benchmark study since it started tracking quarterly car and home insurance premium trends 16 years ago.

The figures came from the British Insurance Premium Index that records premium movements for 2,800 car insurance customers throughout the UK, from more than 80 insurers, brokers and schemes. 

The index average premium was £704 for an annual comprehensive car policy - up 11.5% in just three months. The previous biggest increase was only six months ago. The average premium for policies sold through price comparison sites rose even more sharply by 12.7%. 

Premiums for third party, fire and theft cover (TPFT) often bought by young drivers climbed by 15.9% and by 17.1% on the price comparison site index. 

Edmund King, AA president, said: 'The latest British Crime survey suggests that crime levels are falling, but crucially, it misses a new wave of fraud such as providing false information and claiming for non-existent personal injuries.' 

He also pointed to the rise in premiums on price comparison sites. 

'Comparison sites can enable dishonest individuals to manipulate information to get a lower premium,' added King. 'Insurers are increasingly charging higher prices to these people to cover the increased fraud risk.'

Simon Douglas of AA Insurance believes premiums will continue to rise. 

'Insurers have been making huge underwriting losses - some estimates suggesting that for every £1 taken in premiums, £1.22 is being paid out in claims,' said Douglas. 'Since January last year, average quoted premiums have risen by over 30% and I won't be surprised if, by the end of 2010, we'll have witnessed an unprecedented 50% rise in just two years.' 

The biggest premium increases are reserved for customers buying TPFT cover, typically bought by young drivers buying cheaper, older cars.  

'More and more insurers are withdrawing this type of cover because it is unprofitable,' added Douglas. 'In a few years it could well disappear altogether. As it is, it's often possible to buy comprehensive insurance cheaper than TPFT. In addition, under-21-year-olds looking for cover on a price comparison site will find that fewer than half of the companies listed will offer a quote.'