Sadly for consumers, insurance premiums have steadily risen over the past several years. According to the British Insurance Brokers’ Association (BIBA), home insurance and motor insurance premiums increased by 2.2% from 2015 and 2016. Business enterprises had it worse, however, especially small and medium-sized enterprises, which experienced a 3% increase.
Unfortunately, 2017 isn’t shaping up to be any better, as BIBA has warned that the next IPT hike will have a greater adverse impact on families and small businesses. To help them better weather the increase, BIBA executive director Graeme Trudgill recommends families and small businesses consult insurance brokers to ensure they get the best value insurance that suits their unique needs.
Financial buffering or buffeting?
The increase in Insurance Premium Tax (IPT) will come into effect in June 2017. So consumers have some time to reassess their financial circumstances and insurance needs, and plan ahead so that the blow isn’t a knockout. And it certainly has the potential to knock consumers to the floor, as it will put IPT at 12%, which is a record high for the UK.
The motor insurance industry will be hardest hit, with young drivers being most affected.
According to the BIBA insurance price index, private motor insurance premiums went up by 8.9% and commercial motor insurance increase by 7% over 2015/2016. And that’s before IPT.
According to the AA, comprehensive motor insurance rose by £35 in the last three months of 2016, and the average cost of third party, fire and theft insurance rose by nearly 20% year-on-year. The result, inevitably, is that more drivers are taking to the road without any insurance at all. It’s estimated that over one million drivers are uninsured.
What makes motor insurance prone to such increases?
One contributing factor is the number of fraudulent claims, especially whiplash claims. In fact, fraudulent whiplash claims are such a problem that the government has proposed a ‘whiplash reform’ with accompanying legislation which would save consumers approximately £40 per policy.
Another factor is the rising cost of repairs. According to David Brown (from KPMG), the average cost of repairs due to accidental damage has increased by 20% year-on-year. In fact, Brown believes that increasing repair costs are a more serious threat to motor insurance premiums than whiplash claims.
The number of uninsured drivers also contributes to premium hikes. It’s estimated that the combined total of uninsured drivers and false or excessive claims adds £75 to annual comprehensive motor insurance policies.
Finally, there is the ‘compensation culture’, in which people are more likely to make claims to get what is owed to them, no matter how ‘insignificant’ the injury or damage caused. The attitude is: I paid for it, so why not reap every single benefit? The more claims insurers have to pay out, the higher premiums are likely to be.
What are consumers to do?
Bite the bullet. That’s the only thing consumers can do, really. Motor insurance is a legal requirement. If consumers think the risk of driving without insurance is worth it, they need to consider that the penalties include a £300 and 6 points on their licence. Numerous infringements or a case deemed serious enough to go to court could result in an unlimited fine and disqualification from driving. Vehicles can also be seized and even destroyed by the police.
Consumers don’t need comprehensive motor insurance to avoid penalties. All they need is a basic policy in place.
And then, as Brown recommended, insurance brokers are invaluable. They are qualified to critically assess clients’ insurance needs, and their knowledge of different products allows them to find the best value insurance policies that won’t leave clients high and dry if they ever need to submit (legitimate) claims.