Record car insurance premium fall

Car insurance premiums have fallen by a record amount. But is there a sting still to come?

Car insurance premiums have fallen to a record-low rate, with average prices nearly £90 cheaper than a year ago, according to the AA.

In the past three months the price fell by 4.1%, while over the last year they have dropped 14.1%, the largest yearly price fall ever recorded.

Cheaper car insurance

The average premium price is now £533, down from £559 three months ago and £621 a year ago. The AA’s Shoparound premium is taken from looking at the five cheapest premiums from comparison websites and the direct and broker market.

The price fall is good news for drivers. Simon Douglas, director of AA Insurance, says it's a result of the expected changes in the law which will weed out false whiplash insurance claims. The competitive marketplace has also helped to push costs down.

But despite the fall in price, in the past year there has been a continued rise in the cost of personal injury claims and reinsurance costs.

Douglas said: “The industry is seeing more multi-million pound lump sum payments for those who have suffered life-changing injury as well as periodic payment orders (PPOs) which guarantee regular payments for life.

“These have led reinsurers to increase their rates by up to 30% and some of that will find its way to premiums paid by motorists.”

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Winners and losers

Young drivers are the most likely to make car insurance claims, which is why they typically have the highest premiums.  

The price has fallen for younger drivers, though the average quote for a driver aged 17-22 is £1,187.75. This is almost £900 more expensive than a driver between the age of 60-69.

Insurance premiums vary across the country. The area to see the biggest fall in price is the North West of England with a fall of 6.3% over the past three months. Wales saw the smallest fall of 2.8% in the same time period.

Prices won’t stay low

The bad news is that the price of premiums is not expected to stay low for much longer. This is because they have been falling “too fast and too far ahead of benefits that might be brought by much-anticipated changes to car insurance claims and application processes” argues Douglas.

He says prices will flatten out after March and could potentially bounce upwards again later in the year.

Are you paying too much for your car insurance?

EU Gender Directive

The EU Gender Directive which was implemented at the end of 2012 shook up the insurance market. It meant insurers could no longer use gender when pricing policies. Because women typically were given cheaper insurance before the change, it was predicted the amount they would have to pay would soar.

However, Douglas says the overall drop in price in the past 12 months has masked any increase in prices for young women. This has meant they have seen little change in the cost of their cover whereas young men will have noticed a drop in prices.

How to save money on your car insurance

There are lots of things you can do to reduce your premium.

Switching companies is one of the most important, especially as the best deals are normally reserved for new customers.

Changing the way you drive and using a telematics box could cut your costs along with parking your car in a garage, making it more secure and downgrading can all help too.

Read 25 ways to cut your car insurance.

Are you paying too much for your car insurance?

More on car insurance:

Drivestyle: pay-when-you-need-it car insurance

Cosmetic car insurance: is it worth it?

Pay As You Drive car insurance

Car insurance: putting telematics to the test

The cheapest cars to insure for young drivers