Car insurance premiums up 2 per cent in a year
Insurers are beginning to ramp up car insurance premiums as a result of recent changes to the Ogden discount rate, according to Consumer Intelligence.
The data analytics expert found that car insurance premiums have risen 0.7 per cent in the past three months – with prices now 2 per cent higher than this time last year.
The past 12 months have seen premiums for the over 25s go up by 3 per cent, and those for drivers aged over 50 by 3.6 per cent. Drivers aged 25 to 50 now pay an average of £699 for their car insurance, with the over-50s typically forking out £407 a year.
Drivers under 25 typically pay £1,673 for car cover, 3.2 per cent down on a year ago.
The Ogden rate
The increase in premiums has been put down to the change in the Ogden discount rate. This is the rate used by courts to calculate how much insurance companies have to pay out in compensation for personal injury claims where someone is seriously injured. The figure takes into account the likely return from the investment of the money.
The higher the Ogden rate, the better the outcome for insurers as they have to pay out less money. The government announced in July that the rate would be raised to minus 0.25 per cent from minus 0.75 per cent.
John Blevins, pricing expert at Consumer Intelligence, said: “Pricing at an overall level will be driven by claims experience and the impact of the Ogden discount rate. Many insurers feel misled by the government and had planned for a more favourable discount rate being set. As such, premiums are being adjusted to compensate for the cash injections on to claims reserves made by many insurers.”
At a first glance, the change in the Ogden rate appears modest but any movement in the rate is significant. And to compound the issue, many insurers had already priced in a 0 to 1 per cent move before the government announcement in July.
Average overall premiums have increased 22.6 per cent since October 2013, when Consumer Intelligence first started collecting data. This is still 10.1 per cent off the peak pricing of September 2017, but prices are once more on an upward trajectory.
Telematics, or ‘black box’ car insurance, continues to be one of the main drivers for keeping pricing in check for younger drivers; yet for their older counterparts, take-up remains stubbornly low.
About 64 per cent of the top five cheapest quotes for under-25s are now provided by telematics providers. That figure drops to 12 per cent for drivers aged 25 to 50, and 3 per cent for those over 50.