Cheapest motor rates fell in Q3 - AA

Sharp hikes in UK motor rates have abated and premiums fell at the cheapest end of the spectrum in the third quarter, the AA found.

Meanwhile, household insurance rates have continued to rise steadily.

The AA British Insurance Premium Index shows that average comprehensive premiums increased 0.8% across the market in the three months to 30 September 2011, while third-party fire and theft rates rose 0.1%. 

However in the AA’s Shoparound summary, which takes the average of the three cheapest quotes for each ‘customer’ in a selection of theoretical risks, rates dropped 0.3% for both comprehensive and third-party fire and theft cover.

For the year to 30 September 2011, market-wide rates went up 16% for comprehensive cover and 21.4% for third-party. Shoparound rates increased 16.4% and 33.1% respectively.

By comparison, market-wide premiums in the year to 31 March 2011rose by over 40%. The AA said the drop in year-on-year increases in the most recent quarter gave hope that the worst of the price hikes are over.

“The past two years have seen the biggest-ever rises in premiums as insurers struggled to close a widening gap between premium income and claims costs,” said AA Insurance director Simon Douglas in a statement. “Although historically costs had been rising, premiums had not and, at the end of 2009, for every £100 taken in premiums £123 was being paid out. Something had to give. But the gap has now closed sufficiently to allow insurers to start pricing more competitively once again.”

However, Douglas warned that there are still inflationary pressures for insurers and that the slowdown may be short lived. “I believe that this fall is a respite rather than the start of a trend. Premiums are likely to continue rising next year, but at a much more modest rate,” he said.

He added: “I would be concerned if they do start falling because after a time, it could lead to a repeat of the past two years’ sharp premium inflation.”

 For household insurance, market-wide average buildings cover rates increased 1.7% in the third quarter, while contents rates increased 0.2%. Shoparound rates increased 4% and 2.2% for buildings and contents respectively.

Douglas said the cost of buildings insurance has risen steadily for just over two years, after a long period of relatively little change. The recent increase was driven by winter weather, which caused property damage throughout the UK.

 “Insurers need to consider the potential for future claims and ensure that they have adequate reserves to meet the cost of any extreme and widespread weather damage: for example major flooding or more severe winters,” he said.