Car insurance premiums see biggest quarterly drop for three years in UK

Comprehensive car insurance premiums have fallen by an average of 1.1 percent in the third quarter of 2017 in the UK, the largest quarterly reduction in premiums seen in more than three years.

This is according to the latest Confused.com Car Insurance Price Index in association with Willis Towers Watson.

Across the country, regions experienced a fall in prices over the third quarter with most rises limited to no higher than 1 percent. The biggest quarterly reduction, of 3.5 percent, was seen in the Scottish Highlands and Islands, reducing annual premiums to £645 on average.

The price reduction follows one of the sharpest rises on record seen in the previous quarter as average premiums rose by more than £100, or by nearly 14 percent, over the most recent 12 months. The average premium has risen from £579 in June 2014 to the current level of £838.

The recent fall in premiums is one of only two quarterly reductions seen since September 2014. According to Willis Towers Watson, the reduced prices this quarter reflect in particular insurers’ reactions to the recent announcement of a proposed change in the basis of the calculation of the Ogden discount rate, which determines the basis of settlement and so cost to insurers of the very largest personal injury claims. The monthly version of the Index shows that prices started to fall in July as insurers perhaps anticipated the Ogden announcement. However, according to monthly index analysis flat pricing in August and a slight rise in September suggest that the underlying effects driving recent trends towards higher premiums may still be at play.

Stephen Jones, UK head of P&C pricing, claims, product and underwriting at Willis Towers Watson, commented: “This slight fall in premiums in Q3 logically reflects insurer reaction to the latest developments on Ogden, with pricing adjusted to reflect an anticipated future rate of perhaps between 0 percent and 1 percent, rather than the rate of -0.75 percent previously mooted. Market observers have been keen to identify any signs that the market is finally turning, but the continuing mild increases towards the end of the quarter suggest that the turning point is yet to be reached.”

Despite the slight fall in prices this quarter, during the past 12 months most age groups have experienced double digit percentage increases, with drivers aged 61 hit hardest by increases of 23 percent, equating to average annual premiums of £526. Drivers aged 18 have experienced the lowest annual increase at 7.4 percent but pay amongst the highest average annual premiums at £2,266.

Jones noted: “With uncertainty still surrounding the Ogden discount rate, as well as unknown timings around the Civil Liability Bill, pressures on repair costs from the weakness of Sterling and increasing repair complexity, plus the possibility of further increases in Insurance Premium Tax towards the VAT rate, there is still considerable uncertainty in the market around the future direction of rates.”

Steve Fletcher, head of data services at Confused.com said: “The dramatic Ogden rate cut from 2.5% to -0.75 percent in February 2017 sparked a surge of car insurance price hikes across the UK, in an already inflating market, as insurers braced themselves to pay out more for personal injury claims. A recent (September 2017) government announcement regarding the way rates are set could increase the rate up to 1 percent. This could explain why insurers have been able to calm their pricing slightly this quarter. Even so, we expect this will be short lived given that prices have already started to rise again in September.

“Worryingly, there is every possibility that car insurance prices will be the most expensive on record during the first half of next year. Luckily, insurers are required to show drivers what they paid for their car insurance last year at point of renewal.”

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