But AA insurance director Simon Douglas warns if fall is too great premiums could bounce up sharply again later in the year
Car insurance premiums fell by 14.1% in the 12 months to December 2013 – the biggest annual fall ever recorded by the AA British Insurance Premium Index.
The update for Q4 2013 revealed the average UK motor premium was at £533 at 31 December, down from £559 in the previous three months and more than £100 less than a year ago at £621.
The past year has seen premiums fall by the largest quarterly percentage since the AA index was set up 20 years ago. The 4.6% fall over the three months to December 2013 beat the previous quarter’s record by 0.1%.
AA Insurance director Simon Douglas said the reductions are a result of the fiercely competitive nature of the market, as well as insurers making cuts in anticipation of the law’s effect on fraudulent whiplash injury claims and new industry initiatives.
But he raised raised concerns over the rapidity at which rates had fallen and added it could lead to rates bouncing back sharply later in the year.
“It’s as if premiums are on a helter-skelter slide. I fear that the downward spiral will end with a bump. And while I expect the fall to continue at a slower rate over the first quarter of this year, I think they will then level off,” Douglas added.
“But my biggest fear is that the falls are too great, premiums will bounce sharply up again later in the year.”
Gender directive and insurance industry initiatives
It is more than a year since the introduction of the gender directive on 23 December brought warnings that premiums for young women could increase by as much as 40%.
But Douglas said falling premiums have masked any increase for young women, while those who bought their insurance prior to the ruling coming into effect would additionally have benefited from a year’s no claim bonus, typically amounting to 30%.
He added: “As a result, assuming they had made no claim, young women are likely to have seen little change, or even a small fall, in the cost of their cover. On the other hand, young men will have seen a fairly significant drop.”
A joint industry and DVLA initiative, ‘MyLicence’, is set to be introduced in June to give insurers access to motorists’ driving records, including convictions and experience. It has been predicted it will reduce the cost of car insurance by a further £15.
Confused/Towers Watson index
Last week’s Confused/Towers Watson car insurance index revealed a 13% drop in the average motor premium over 2013 – an indication that insurers had possibly gone too far with cutting premiums.
But the poll concluded that rates were starting to level out, because over the fourth quarter of 2013 prices fell by an average of just 1%, compared with 8% and 4% drops in Q2 and Q3 respectively. The report said it was an indication that insurers were starting to believe they had been too severe with their pricing actions.