The average car insurance premium is now £755 – an increase of £24 compared with the previous quarter. This is a sharp rise from when premiums hit their lowest level in the third quarter of 2019 (£708).
Figures from Compare The Market show premiums are now perilously close to their peak of £758 at the end of 2017. This is around £200 more expensive than the low of £559 in 2012.
Insurance Premium Tax (IPT) rises and the changes to the personal injury discount rate are two factors behind the increased cost of insurance.
IPT is calculated as a percentage of the annual cost of car insurance, which can penalise young drivers. Indeed, young motorists are charged an average of £134 in IPT every year – versus £77 for other drivers.
However, the cost of car insurance could fall in the next quarter. With lockdown measures in place, insurance companies are dealing with fewer claims. This could encourage them to offer cheaper premiums in the second half of 2020.
‘Lower prices to consumers’
Dan Hutson, head of motor insurance at Compare The Market, said: “Following a period of reducing premiums, motorists will be disappointed that premiums have continued to rise. This spiralling cost of insurance is thanks, in part, to hikes in Insurance Premium Tax.
“IPT remains a fundamentally unfair tax, as those that can afford it least pay the most. IPT is calculated as a percentage of the annual cost of insurance, which means that those who have higher premiums pay higher tax. This unfairly penalises young drivers, who usually pay higher premiums. The rising cost of running a car, particularly for younger people, is making driving a luxury for many who see it as necessity.
“However, while the impact of the coronavirus is still unclear, the reduction in car usage could result in a reduction in premiums around the UK. The Government has reported a near 70 percent reduction in motor vehicle use across the country. With mileage reducing, this is likely to result in significantly fewer claims, which could in turn mean that insurers can offer lower prices to consumers.”