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Government reforms bring down cost of car insurance – Which? News – Which?

The cost of car insurance has dropped £100 between December 2018 and February 2019, according to the latest Premium Drivers Index from comparethemarket.com.

The average annual premium now stands at £690. The decrease follows new government reforms to the personal injury compensation system introduced last year.

It comes as welcome news for drivers across the nation, who have faced significant increases to their car insurance premiums over the last few years.

Which? explains why premiums have plummetted and how to secure a cheap car insurance deal.


Why is the cost of car insurance going down now?

In December 2018, the government passed the Civil Liability Act to change the way that whiplash claims are calculated.

In a nutshell, the Civil Liability Act will do the following:

  • Introduce a new tariff for whiplash claims
  • Enable courts to increase the amount of compensation they award people who claim according to the tariff
  • Prevent people from settling claims when they don’t provide appropriate medical evidence of their injuries

The Ministry of Justice (MoJ) say that the change will make the system fairer by ensuring that while those who are injured receive ‘full and fair compensation’ the ‘pressure of meeting excessive compensation’ claims is reduced for defendants.

Although the changes aren’t expected to come into force until April 2020, insurers have already passed the lower costs onto drivers.

In December 2018 the average car insurance premium was £790, the highest since records began. After the Civil Liability Act was passed, however, premiums fell to £727 in January 2019 and again to £690 in February.

Another factor that may have caused car insurance premiums to fall is a reduction in the number of car registrations. In December last year, car registrations were down 5.5% year on year, according to data from The Society of Motor Manufacturers and Traders (SMMT).

In January and February of this year, registrations were down 1.6% and 0.6%, respectively. Due to the shrinking market, car insurers have had to become more competitive on their pricing to attract customers.

Why did the cost of car insurance increase in the past?

The cost of car insurance saw a significant increase over the last few years due to a slew of government changes including a hike in Insurance Premium Tax (IPT) and changes to the Ogden rate.

The Discount Rate

The Discount Rate – also referred to as the Ogden rate – is used by the courts to decide how much insurance companies have to pay out in compensation for personal injury claims.

In March 2017, the government dropped the Discount Rate to -0.75% – down from 2.5%. This basically meant that the lump sum payout for a personal injury claim would be increased, rather than discounted, which led to a sharp rise in the amount of compensation that insurers had to pay.

Initially, this caused a spike in car insurance prices, but as insurers began to recover from the shock, car insurance premiums began to fall[1].

As part of the Civil Liability Bill, the government agreed to revisit the Ogden rate and how it’s used to calculate compensation for serious personal injury claims. This review is expected to take place later this year and could reduce car insurance premiums further.

Insurance Premium Tax

Insurance Premium Tax (IPT) is a tax levied on insurance companies by the government. It affects anyone who takes out an insurance policy in the UK because insurers often factor IPT into the costs paid by customers. So essentially, if the cost of IPT increases, so will the cost of your car insurance.

There are two types of IPT:

Since October 2015, the standard rate of IPT has risen four times, doubling from 6% to 12% and premiums steadily increased as a result.

The table below shows historical IPT rates.

Rates From 1 June 2017 1 Oct 2016 to
31 May 2017
1 Nov 2015 to 30 Sep 2016 4 Jan 2011 to 31 Oct 2015 Up to 3 Jan 2011
Standard rate 12% 10% 8.5% 6% 5%
Higher rate 20% 20% 20% 20% 17.5%

How to find cheap car insurance

Whether you’re taking out your first insurance policy or due to renew, there are a number of ways to get the car insurance cover you need at a competitive price.

First, while price an important factor to consider, don’t just go for the cheapest policy straight away. Make sure that you read the terms and conditions first to ensure that you’re buying the right level of cover.

Purchasing a policy that doesn’t give you enough cover will end up costing you a lot more should you have to make a car insurance claim[2] and find out you’re not actually protected for that incident.

The time of year that you buy car insurance can also have a big impact on the price you pay for car insurance.

Research shows that February is the cheapest month for car insurance[3], while December is the most expensive month for car insurance[4].

To help you find the best insurer, we’ve combined expert analysis of more than 30 standard car insurance policies along with feedback from thousands of policyholders to produce independent car insurance reviews[5].

You can also find more useful tips in our car insurance advice guide[6] and the short video below.

References

  1. ^ car insurance premiums began to fall (www.which.co.uk)
  2. ^ make a car insurance claim (www.which.co.uk)
  3. ^ cheapest month for car insurance (www.which.co.uk)
  4. ^ most expensive month for car insurance (www.which.co.uk)
  5. ^ car insurance reviews (www.which.co.uk)
  6. ^ car insurance advice guide (www.which.co.uk)

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