CAR insurance premiums will top an average of £800 a year next month, according to one of Britain’s biggest comparison websites.
Annual bills have soared over the last two years as the real overall cost of motoring began to rise, bucking a two-decade-long decline.
Comparethemarket.com said average premiums had risen from about £600 in June 2015 and £701 a year later and would hit another record when formally announced next month.
The rise this year – some 14 per cent – is far steeper than the main measure of inflation, which is running at about two and a half per cent.
That comes on top of faster depreciation and more expensive repairs and fuel brought by the crash in the pound following Brexit.
Simon McCulloch, director at comparethemarket.com, said: “This is somewhat of a watershed moment for car insurance. 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.
“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.”
Some insurers have explicitly blamed rising premiums on new measure to calculate compensation for the victims of accidents, which was announced by Justice Secretary Liz Truss in February. Analysts PWC previously estimated premiums would rise by between £50 and £75 for a typical comprehensive policy, while Direct Line said the reform would wipe up to £230 million from its 2016 profits.
However, insurance premiums, according to Comparethemarket, had been rising before Ms Truss’s move. Other sources broadly corroborated the website’s numbers. The RAC said average premiums had risen from £590 to £671 during 2016. Rival comparison site Confused.com last month said premiums had risen 16 per cent in 12 months and predicted £1000 annual bills “soon”.
Automotive data experts HPI in March said the weak pound and other factors had driven up the cost of motoring by around 10 per cent over the last year.
Low interest rates had made buying a car cheaper for those who wish to borrow to do so. However, most cars are either foreign-made or manufactured in the UK using overseas parts. So their costs, in sterling terms, have risen. The UK currency lost a fifth of its value against the dollar after Britain voted to leave the world’s biggest trading bloc in June 2016.
Oil – even oil produced in Scotland – is priced in US dollars. Fuel prices rose by almost 20p per litre in the year to March 2017.
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