Cost
of car insurance has dropped
The Which? magazine reports "the cost of car insurance
has dropped £100 between December 2018 and February 2019,
according to the latest Premium Drivers Index from comparethemarket.com
. The average annual premium now stands at £690. The decrease
follows new Government reforms to the personal injury compensation
system introduced last year. It comes as welcome news for drivers
across the UK who have faced significant increases to their
car insurance premiums over the last few years.
Why is the cost of car insurance going down now?
In December 2018, the UK Government passed the Civil
Liability Act to change the way that whiplash claims are
calculated. In a nutshell, the Civil Liability Act will do the
following:
> Introduce a new tariff for whiplash claims.
> Enable courts to increase the amount of compensation
they award people who claim according to the tariff.
> Prevent people from settling claims when they don’t
provide appropriate medical evidence of their injuries.
The Ministry of Justice (MoJ) say that the change will make
the system fairer by ensuring that, while those who are injured
receive ‘full and fair compensation’, the ‘pressure
of meeting excessive compensation’ claims is reduced for
defendants. Although the changes aren’t expected to
come into force until April 2020, insurers have already passed
the lower costs onto drivers.
In December 2018 the average car insurance premium was £790,
the highest since records began. After the Civil Liability Act
was passed, however, premiums fell to £727 in January
2019 and again to £690 in February 2019.
Another factor that may have caused car insurance premiums to
fall is a reduction in the number of car registrations.
In December 2018, car registrations were down 5.5% year on year,
according to data from The Society of Motor Manufacturers and
Traders (SMMT). In January and February of this year, monthly
registrations were down 1.6% and 0.6%, respectively. Due
to the shrinking market, car insurers have had to become more
competitive on their pricing to attract customers".
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Why did the
cost of car insurance increase in the past?
Which? explains "the cost of car insurance
saw a significant increase over the last few years from several
Government changes including a hike in Insurance Premium
Tax (IPT) and changes to the Ogden rate or Discount Rate.
.
> Changes to the Ogden rate or Discount Rate
The Discount Rate is used by the courts to decide how much
insurance companies have to pay out in compensation for personal
injury claims. In March 2017, the Government dropped the Discount
Rate to minus 0.75% – down from 2.5%. This meant that
the lump sum payout for a personal injury claim would be increased,
rather than discounted, which resulted in a sharp rise in
the amount of compensation that insurers had to pay out. Initially,
this caused a spike in car insurance prices, but as insurers
began to recover from the shock, car insurance premiums began
to fall. As part of the Civil Liability Bill, the Government
agreed to revisit the Ogden rate and how it’s used to
calculate compensation for serious personal injury claims.
This review is expected to take place later this year and
could reduce car insurance premiums further.
> Hike in Insurance
Premium Tax (IPT)
Insurance Premium Tax (IPT) is a tax levied by the UK Government
on insurance companies. It affects anyone who takes out an insurance
policy in the UK because insurers often factor IPT into the
costs paid by customers. So essentially, if the cost of IPT
increases, so will the cost of your car insurance.
There are two
types of IPT:
> Standard rate:
applies to general insurance policies like car insurance,
home insurance and pet insurance. Since October 2015, the standard
rate of IPT has risen four times, doubling from 6% to 12% and
premiums have steadily increased as a result.
> Higher rate: applies to travel insurance, mechanical
insurance, and electrical appliances insurance".
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