Record rise in car insurance premiums

The average car insurance premium has increased by 11 per cent in the past year – around four times more than inflation.

The Association of British Insurers (ABI) has released the figures, which show the average premium has gone up by £48 to £484 when compared with last year.

It says that this is the fastest year-on-year rise ever recorded.

The rapid rise has been driven by the Government’s decision in February to cut the personal injury Discount Rate – which is used to help set compensation pay-outs when people suffer serious injuries – from 2.5 per cent to minus 0.75 per cent.

Meanwhile, the Insurance Premium Tax increased from 10 per cent to 12 per cent on June 1.

Huw Evans, director general of the ABI, said: “This dramatic increase drives home how important it is the Government press ahead with a new framework for the Discount Rate and call a stop to further hikes in Insurance Premium Tax.

“The UK is one of the most competitive motor insurance markets in the world, but the unprecedented increase in claims costs is driving up prices to record levels.

“Most younger and older drivers are likely to face increases even higher than this, hurting people who can least afford it. Worryingly these increases are unlikely to be the end of the road if reinsurance premiums go up at the end of the year, adding further costs to insurers.”

Mark Godfrey, RAC insurance director, called for the Government to consider lower insurance premium tax for drivers who opt for ‘black box’ telematics devices.

He said: “These figures should be a wakeup call to the Government that, without action, premiums risk spiraling out of control.”