Expect increases in both motor and home insurance premiums due to government decisions such as the personal injury discount rate cut and tax hike, industry giant AA has said.
The insurer has released its British Insurance Premium Index for the first quarter of 2017, which shows a £4.25 rise in the average quoted shop-around premium for a typical annual comprehensive car insurance policy.
Michael Lloyd, the AA’s director of insurance, points out that premiums would have remained stable or even fallen if the government did not slash the Ogden rate from 2.5% to -0.75%.
“It has had an immediate effect on car insurance premiums because injuries already claimed for, but not yet paid, are affected by the rate change as well as new claims,” Lloyd said.
“It was an astonishing and unrealistic decision that didn’t take account of where claimants are most likely to save their money,” he added.
Apart from the discount rate cut, rising car repair costs and the doubling of Insurance Premium Tax (IPT) in just two years are contributing to upward premium pressure, according to the AA.
“The Index suggests that the first quarter is the calm before the storm… there’s no doubt that they will quickly climb again unless further IPT increases are curbed and the discount rate is reviewed,” Lloyd said.
For home insurance, Lloyd is expecting a 2% inflationary increase for policies being taken out or renewed from the beginning of June when IPT again rises to 12%.
Despite an increasingly competitive market, Lloyd believes that further falls in premiums are unlikely. He also notes that insurers must now declare a homeowner’s previous year’s premium on renewal.
“I believe this will only encourage more people to change insurance cover more often,” Lloyd says. “That in turn is likely to discourage insurance companies from offering introductory discounts if they don’t expect to renew business after the first year.”
“I believe that, combined with the further increase in IPT, this will see premiums going up again this year,” he adds.
