Increasing insurance costs set to hit drivers

The average cost of comprehensive motor insurance has soared by 40 per cent during the past 12 months, with younger drivers seeing increases of 51 per cent.

The Transport Select Committee yesterday heard that premium rises were being driven up by a combination of increased fraud, higher personal injury costs, a rise in claims management companies and the cost to the industry of uninsured drivers.

Duncan Anderson, of EMB Consultancy, said the recent steep increases had reflected a "catch up" in insurance premiums following higher claims costs.

But he added: "If claims continue to rise at the rate that they have been increasing, rates will continue to increase as well.

"Bodily injury claims are increasing at a rate of 30 per cent and other claims types are increasing by 5 per cent an annum.

"Overall there might be a 15 per cent to 20 per cent natural increase in claims costs if things continue as they are, which will be reflected in ever increasing premiums.

"

Edmund King, president of the AA, said the current increase in premiums was "unsustainable for consumers", adding that the problem was particularly severe for younger drivers, who typically faced rates of 2,000 to 3,000 a year, often four to five times more than the value of their cars.

He said: "If we do nothing costs will not increase as much as in the past 12 months as there has been a catch up, but we will see continued increases unless we take decisive action.

"

Insurance premiums have doubled since 2005, and Mr Anderson said the main driver was the increased cost of bodily injury claims, with both the number of claims and the cost per claim rising, despite the fact that the number of accidents in the UK has fallen.

He said the country now had a "claims farming culture".

The Committee heard that the number of claims management firms operating in the UK had doubled to more than 3,000.

There was also a correlation between areas of the country where there were particularly high concentrations of claims management firms, and areas where a high proportion of accidents involved personal injury claims.

Dr David Brown, of the Institute and Faculty of Actuaries, said the highest concentration of claims management firms was in the North West, where 40 per cent of accidents involved a bodily injury claim, compared with just 25 per cent across the rest of the country.

Many of the firms operated in Yorkshire and the North East, as well as in London. He said London had seen the highest increase in both the number of claims management firms operating in the area and the biggest jump in personal injury claims.

But MPs heard that as well as facing higher claims costs as a result of the rise in claims management companies, insurers were also benefiting from them, with most firms receiving referral fees for passing on details of accidents to them.

Nick Starling, from the Association of British Insurers, admitted that this was the case, but said the system was "essentially dysfunctional" and insurers recognised that these fees needed to go.