The average car insurance policy will pass £800 due to IPT
The average car insurance policy will rise above £800 for the first time next month when Insurance Premium Tax increases from 10 to 12 per cent tomorrow.
That’s the warning from comparethemarket.com, which predicted that the 2 per cent IPT increase will mean that average motor insurance premiums will hit a new high, with costs jumping 14 per cent in just 12 months.
The average policy price a year ago was £701 and just £600 in June 2015, the comparison service said.
IPT hike: Insurance Premium Tax will increase by 2% tomorrow – the third rise in two years. Experts say it will add around £16 to the average premium
Simon McCulloch, Director at comparethemarket.com, said tomorrow’s IPT increase was a ‘watershed moment for car insurance’ as the average policy surpasses £800 for the first time on record.
By the end of April, the average premium was £790, according to the comparison site’s own data.
‘The cost of an average policy has risen by around a third in two years, demonstrating just how difficult it is for people to get on the road,’ he said.
‘No one factor has driven premiums up this much, but some measures taken over the past years have put serious pressure on policies.
‘One of the most prominent causes of these rises is the doubling of insurance premium tax over the past two years.
‘Equally, the recent decision by the Ministry of Justice to change how compensation is calculated, has also added substantial amounts to the average person’s policy.
‘Low interest rates and the cyclical nature of car insurance, have also played a part in rising premiums, but the hyperinflation caused by these governmental changes has disproportionately pushed up the cost of driving.’
The Association of British Insurers warned that the increase of IPT to 12 per cent as of June 1 will see the average household’s bills increase by around £200 – taking car and home insurance into account alongside pet and private medical policies.
But leaps in motor insurance costs won’t end there.
Confused.com calculated that drivers should expect to see premiums increase by £16 on average tomorrow, but has estimated that they will spike further by the end of the next year.
Confused.com expects the average premium to be close to £1,000 by the end of next year with changes to Ogden discount rate
Amanda Stretton, spokeswoman for the site, said: ‘With drivers having to bear the additional brunt of recent changes to the Ogden tax, we expect average insurance premiums will be on course to hit a whopping £1,000 by the end of next year. ‘
Friday will be the third time premium tax has been increased in the last 24 months, with the most recent hike coming in October 2016 with a rise from 9.5 per cent to 10 per cent.
Experts are now concerned that the escalating cost of car insurance could provoke many to drive without any form of cover.
According to the latest figures from the Motor Insurers’ Bureau, there are currently around 1million uninsured drivers on UK roads – a number that could rise as motor insurance costs become more difficult to afford.
What can drivers do to reduce their premiums?
Drivers are being told to refrain from reducing their level of cover in an aim to make premium costs more affordable – not because they would receive a lower level of protection but because fully comprehensive cover is less expensive than third party fire and theft.
That’s according to Confused.com, which found that choosing comprehensive car insurance can save drivers an average of £633.
Based on figures from its own car insurance price index, it found that the average third party policy costs drivers a whopping £1,414 on average against a still significant £781 for a comprehensive policy.
Drivers are being urged not to drop their level of cover to a third party policy as comprehensive cover can be significantly cheaper
|Demographic||Avg Comp Premium||Avg TPFT Premium||Difference||Annual Comp Increase||Annual TPFT Increase|
‘As riskier drivers have continued to purchase third party insurance, the cost of this type of cover has increased to match the greater number and cost of claims,’ Amanda Stretton said.
The drivers most likely to feel the brunt of the IPT rise are younger drivers, who already face motor insurance costs in the region of £2,000 in some cases and could see premiums increase by £30 from Friday.
But MoneySuperMarket believes the average 17 to 20 year old driver can save £200 – even when factoring in tomorrow’s IPT increase – if they switch to a telematics policy.
The rate of young drivers (classified as 17 to 20 year olds) opting for these kinds of policies has increased by 13 per cent over the last 12 months alone, the website said.
Already in 2017, 51 per cent of policies taken out by 17 year olds have been telematics ‘black box’ products, compared to 35 per cent 12 months ago.
Kevin Pratt, consumer affairs expert at MoneySuperMarket, said that more younger drivers should consider switching to a policy of this type or risk facing a ‘double-whammy’ rise in insurance costs tomorrow.
With a higher percentage of accident and personal injury claims made by less experienced motorists, their costs are already higher than any other age group. And an IPT increase will see their costs not only rise, but rise by more than any other generation on the road.
‘Telematics offers a cheaper alternative to traditional policies if the driver can demonstrate he or she is a lower-risk proposition than the statistics for their demographic suggest,’ Pratt added.
‘Black boxes also make the roads safer by incentivising good driving habits. Any young driver on a traditional policy should spend five minutes shopping around when their policy is up for renewal – they could make significant savings if their black box data confirms they are safe and sensible behind the wheel.’
Courtesy: Daily Mail Online