Welcome fall in car insurance premiums

Some good news at last with car insurance premiums falling.

Posted: 190421
Cost of car insurance has dropped
The Which? magazine reports "the cost of car insurance has dropped £100 between December 2018 and February 2019, according to the latest Premium Drivers Index from comparethemarket.com . The average annual premium now stands at £690. The decrease follows new Government reforms to the personal injury compensation system introduced last year. It comes as welcome news for drivers across the UK who have faced significant increases to their car insurance premiums over the last few years.

Why is the cost of car insurance going down now?
In December 2018, the UK Government passed the Civil Liability Act to change the way that whiplash claims are calculated. In a nutshell, the Civil Liability Act will do the following:
> Introduce a new tariff for whiplash claims.
> Enable courts to increase the amount of compensation they award people who claim according to the tariff.
> Prevent people from settling claims when they don’t provide appropriate medical evidence of their injuries.

The Ministry of Justice (MoJ) say that the change will make the system fairer by ensuring that, while those who are injured receive ‘full and fair compensation’, the ‘pressure of meeting excessive compensation’ claims is reduced for defendants. Although the changes aren’t expected to come into force until April 2020, insurers have already passed the lower costs onto drivers.

In December 2018 the average car insurance premium was £790, the highest since records began. After the Civil Liability Act was passed, however, premiums fell to £727 in January 2019 and again to £690 in February 2019.

Another factor that may have caused car insurance premiums to fall is a reduction in the number of car registrations. In December 2018, car registrations were down 5.5% year on year, according to data from The Society of Motor Manufacturers and Traders (SMMT). In January and February of this year, monthly registrations were down 1.6% and 0.6%, respectively. Due to the shrinking market, car insurers have had to become more competitive on their pricing to attract customers".

Why did the cost of car insurance increase in the past?
Which? explains "the cost of car insurance saw a significant increase over the last few years from several Government changes including a hike in Insurance Premium Tax (IPT) and changes to the Ogden rate or Discount Rate.
> Changes to the Ogden rate or Discount Rate
The Discount Rate is used by the courts to decide how much insurance companies have to pay out in compensation for personal injury claims. In March 2017, the Government dropped the Discount Rate to minus 0.75% – down from 2.5%. This meant that the lump sum payout for a personal injury claim would be increased, rather than discounted, which resulted in a sharp rise in the amount of compensation that insurers had to pay out. Initially, this caused a spike in car insurance prices, but as insurers began to recover from the shock, car insurance premiums began to fall. As part of the Civil Liability Bill, the Government agreed to revisit the Ogden rate and how it’s used to calculate compensation for serious personal injury claims. This review is expected to take place later this year and could reduce car insurance premiums further.

> Hike in Insurance Premium Tax (IPT)
Insurance Premium Tax (IPT) is a tax levied by the UK Government on insurance companies. It affects anyone who takes out an insurance policy in the UK because insurers often factor IPT into the costs paid by customers. So essentially, if the cost of IPT increases, so will the cost of your car insurance.

There are two types of IPT:
> Standard rate: applies to general insurance policies like car insurance, home insurance and pet insurance. Since October 2015, the standard rate of IPT has risen four times, doubling from 6% to 12% and premiums have steadily increased as a result.
> Higher rate: applies to travel insurance, mechanical insurance, and electrical appliances insurance".