Car insurance costs fall by record 10%

Premiums have plummeted for motorists, thanks to a crackdown on fraud and claims management firms.

Car insurance premiums have fallen by nearly 10% over the last year, according to new figures.

The AA British Insurance Premium Index found that the average cost of a comprehensive policy decreased from £659.53 in July 2012 to £594.86 in July 2013 – a 9.8% drop.

It’s the biggest fall recorded since the Index started in 2004. Yet the actual cost of car insurance is still double what it was six years ago.

The AA calculates a ‘shoparound’ price from an average of five cheapest premiums found through direct providers, brokers and price comparison sites every three months, using a nationwide basket of risks.

The AA also measures the cost of home insurance and this sector also saw a fall in premiums.

A combined buildings and contents policy had the biggest drop of 5.8% over the past year with an average premium costing £175.78. An individual contents policy fell by 3.8% to £70.72, while a single buildings policy fell by 5% to £130.45.

However, this downward trend could be reversed because of the agreement that has been reached between the Government and insurers on flood-risk homes. For more read New insurance agreement for flood-risk homes: what it means for you.

But according to the AA the cost of car insurance is likely to continue dropping as fraud detection improves and whiplash claims fall.

Plummeting prices

All age ranges experienced a drop in the average shoparound price of a car insurance policy over the past year.

23- to 29-year-olds saw the biggest price change with a 12.8% reduction bringing their average premium down to £738.93.

Elsewhere the smallest shift in prices were for those aged 70 and over. This age range only had a 3.9% fall in premium prices over the past year with a cost of around £407.70.

On average, those aged 60 to 69 have the cheapest annual insurance premium of £342.73, while those aged 17 to 22 have the most expensive, at £1,210.54 a year.

Whiplash and fraud

According to the AA, the ban of referral fees paid between claims management companies and lawyers introduced in April has helped to drive costs down, in addition to an industry crackdown on fraud.

Sharp premium increases were seen between 2009 and 2011, largely as a result of an increase in whiplash injury and fraudulent claims, which created a gap between what insurers raised in premiums and what they had to pay out.

Claims management companies offering ‘no win, no fee’ arrangements fuelled a whiplash claim culture which is thought to add £90 to the average insurance policy.

But new figures from the Claims Management Regulation Unit has revealed the number of these types of companies has fallen from 2,435 in March 2012 to 1,700 in June 2013 following the ban.

Since April, when the ban was brought in, a comprehensive policy has fallen by 3% in price, while third party fire and theft insurance costs went down 2.2%.

The AA found that the areas that have seen the highest activity for claims management companies in the past have seen the biggest drops in their premiums.

The Granada region in the north-west of England experienced a 4.4% fall in prices, bringing the average down to £909.08, while London saw a 3.5% drop where prices fell to £688.73.

Gender-neutral

The new gender-neutral insurance environment appears to have had an impact as well.

Since December 2012 insurers have been banned from using gender as a factor in calculating premiums and offering different prices to men and women.

According to the AA, premiums for young men have fallen substantially since gender equality was introduced, but those for women have either stayed the same or have risen by much less than was expected. Read more in Car insurance quotes fall for women as providers lose money.

Simon Douglas, director of AA Insurance, said the background of falling insurance premiums generally has helped close the premium gap between men and women, but he said young drivers had fared the worst with young women seeing a small rise generally.

How to drive down the cost of insurance

Despite the record fall in the price of car insurance, the cost is still double what it was six years ago. So here are some tips on how to further reduce the cost of a policy.

Choose your car carefully – the type of car you go for can drive down the cost of your policy. That’s because insurers classify cars into groups numbered from one to 50. Vehicles that fall into the higher end of the scale cost more to insure while those at the lower end cost much less. For more read: How car insurance groups work. You can check which group your car falls into online with Thatcham, which administers the Association of British Insurers' Group Rating System.

Be accurate – don't overestimate how many miles you do or how much your car is worth. Be accurate and you could reduce the price of your policy. Insurers use these bits of information to calculate risk, so don't rush when answering these questions.

Shop around – don’t settle for the first price you find. Shopping around can get you a cheaper quote. Comparison sites make the job a lot easier but remember some insurers don’t appear on these engines like Aviva and Direct Line so be sure to check with them too.

Use telematics technology – telematics insurers use a little black box to monitor your driving behaviour. If you meet the criteria of a good driver your premiums can go down but if you drive badly they are likely to go up. See how I got on in Car insurance: putting telematics to the test.

For more read 25 ways to cut your car insurance.

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