Car insurance faces 2010 cost pressures

23 December 2009 09:38:47

Car insurance premiums might increase next year.

Car insurers generally face higher claims numbers at this time of year, as the lengthening evenings and icy roads caused by the winter weather lead to higher accident rates. Conditions have been made even more difficult for the nation's car insurance customers as typical premium costs have risen considerably over the past year.

Despite this, there is hope that the market might improve over 2010, with strong public support for tougher road rules for drivers and potentially revolutionary changes to insurance certificates.

Rising premiums

The UK is currently facing a period of near-unprecedented economic hardship, which has had direct knock-on effects on personal finances. Specifically, the personal income of many households has become less secure due to rising unemployment.

Unfortunately for the nation's motorists, these financial pressures have not been offset by a decline in car costs. Analysis conducted in November 2009 by Sainsbury's Finance, using figures from the AA, showed that the overall price of running a car had risen by 2.68% over the previous 12 months to £2,338. This total included a 12.95% increase in insurance premiums and an 8.45% vehicle tax rise.

The insurance cost trends reflect the hard times currently faced by cover providers. In particular, the problem of uninsured drivers has put pressure on the firms. Around one in 20 UK drivers are thought to not have car insurance, adding around £30 to the typical annual customer premium. Public support for a harsher crackdown on the uninsured is strong, according to a poll released by the AA at last month's Association of British Insurers motor conference; a total of 69% of UK adults polled agreed that a new offence for insurance evaders should be created under UK law.

Meanwhile, evidence suggests that criminal insurance scams could also boost insurers' costs, and customers' premiums, in 2010. In particular, "motor gangs" have been identified recently as staging "cash for crash" claims in order to sting insurers. The fraud occurs when a third party deliberately stages a motor accident in order to launch an injury claim for a client. Steve Foulsham, technical services manager at the British Insurance Brokers' Association, said earlier this month that the north-west of England is a particular hotspot for these scams.

Safety warnings

Many more accidents are also being caused by drivers' own road habits. Recent figures from the Transport Research Laboratory (TRL) revealed that the proportion of drivers using their mobile phone handsets while on the road rose from 2.6% in 2006 to 2.8% in 2009, despite the fact that using a phone in this way increases the driver's chances of crashing four times over. Data from The Co-Operative Insurance and road safety charity Brake also revealed that 30% of drivers aged under 25 years old have previously broken road laws by driving dangerously.

However, British motorists can take heart from figures released by car insurance provider AXA earlier this month, which showed that conditions are even worse on the continent. The insurance provider compared driving standards among 10 European nations, with the UK ranking second only to Ireland for safety. AXA also found that only 4% of UK motorists had previously driven while under the influence of alcohol, a major factor behind many car accidents, compared to a continent-wide average of 21%.

New technology

Despite the prospect of increases to premiums, the British car insurance customer has some reasons for cheer moving into 2010. For example, More Than, a car insurance provider, has launched a new iPhone application to improve the quality of information provided on accident claims.

Customers of all insurance firms can download the software for their phones from Apple's App Store and can then use the service to gather data from the scene of the crash, including witness statements, photographs and GPS coordinates. This could improve the accuracy of the information provided to car insurance firms.

Meanwhile, the government has confirmed a crucial improvement to the current car insurance renewal services. From April 2010, providers will be permitted to issue electronic car insurance certificates alongside the traditional paper forms, meaning that motorists can get instant confirmation when their insurance is renewed rather than depending on the postal service.

This move, which was confirmed by transport minister Paul Clark in November, will also allow drivers to have instant proof they have renewed their car insurance. This will help those motorists who have renewed, but have yet to receive their documents in the post, to complete tasks such as paying their car tax at Post Offices.

However, consumers are still likely to be concerned over the future cost of premiums in 2010. If reductions cannot be made to the number of car accidents and uninsured drivers, increases to insurance costs could follow.

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