Accident-prone young drivers and a surge in fraudulent claims are key factors behind the steep rise in motor insurance premiums which threaten to drive some motorists off the road.
According to the benchmark AA British Insurance Premium Index, motorists faced a startling increase of 11.5% in the third quarter, based on the cheapest three quotes collected in its survey.
In the year to September 30, the cost of annual comprehensive cover jumped by 39.3% to £792, the biggest annual rise ever recorded by the Index which began in 1994.
For third party, fire and theft policies, which is the best that many younger, riskier drivers can get, a 54.6% jump produced an average annual bill of £1,097.
Young drivers face the stiffest increases because they generate so many claims.
Over the past year, the average cost of cover has jumped by 51% for 17- to 22-year-olds. Even after shopping around, men of this age can expect annual premiums around £2,500, while women (less dangerous) pay £1,400.
AA Insurance director Simon Douglas says: "Statistics from the Department for Transport (2009) show that a third of men killed or seriously injured on Britain's roads are under 25."
He adds: "Car crashes are by far the biggest threat to life among young people - considerably more than drugs or knife crime, for instance.
"These shock statistics underline why premiums for young drivers are soaring."
Middle-aged drivers (40-59) have seen a 30% surge in premiums, perhaps because many parents extend their policies to provide cover for children.
The pain for all motorists, says Douglas, has been intensified by price comparison sites which drove premiums so low that many companies lost money on car insurance.
"Five years ago we warned that sharp premium inflation would be the result of this competition but the recession is adding to the pain," he says.
Today, insurers pay out £123 to settle claims for every £100 collected in premiums and the Government will push prices higher on January 1 by adding 1% to insurance premium tax.
The AA thinks premium rises could continue in 2011, although the largest rises may already be factored in.
Meanwhile, few can predict when the bill for settling personal injury claims will level off as "no-win, no-fee" lawyers seek out accident victims to pursue their claims. One estimate suggests 30,000 fraudulent claims are paid out each year, adding an average £80 to the cost of each policy purchased.
New figures from the Association of British Insurers (ABI) from an analysis of 50,000 low value personal injury claims reveal an average compensation payout of £2,430 - plus legal fees of £2,100 a time.
A moneysupermarket.com report suggested in September that one motorist in every 20 aged under 35 has "staged" an accident to make a fraudulent insurance claim.
AA spokesman Ian Crowder says: "Ultimately honest motorists pay for this scam through rising premiums. The fact is that it is very difficult to clinically disagree when claimants say they have whiplash injuries, and on low value claims insurers know it is cheaper to pay up than to fight the case in the courts."
Drivers now find themselves under growing pressures. How can they keep car insurance costs under control?
Online price comparison sites are a vital weapon. The AA figures show that comprehensive cover purchased from the cheapest three comparison site quotes averaged £592.08, saving £200, while third party, fire and theft policies on the same basis cost £764.77, saving £333 against average price.
Crowder adds: "Savvy folk use sites for research, and then go direct to an insurer to find their best price.
"Providers may strip out certain parts of a policy, such as windscreen cover, Europe cover, loan car provision, or legal expenses, to make the price competitive."
At Tiger, a comparison site highly rated by financial data specialists Defaqto in November 2009, managing director Graeme Kalbraier maintains: "If your premium is over £500, it can be worth obtaining a quote over the telephone as well as through a price comparison site.
"These days insurance brokers have special schemes offering competitive rates; they are only available by phone, as the broker has to speak to the customer directly to quote the premium."
In today's highly competitive market, drivers also need to convince existing providers that they are open to better offers.
In my experience, the cost of renewing my policy dropped £35 when I said I had driven only 30,000 miles in five years.
Drivers can also save money by raising the excess (the limit of the bill they will pay themselves) on their policy, particularly when the valuation is relatively slow. You may not actually be sacrificing much if you agree to pay an extra couple of hundred pounds in the event of a claim, in return for a lower premium and a better chance of preserving your no-claims bonus.
Sian Worthington, at moneyextra.com, says: "Insurers reap the highest returns when customers fail to look around. Get some idea of what rival firms will offer, and you can usually negotiate your own provider down."
So, what can be done to help young drivers?
The AA's Simon Douglas says insurers, road safety organisations and the Government must lead the drive for higher quality driving standards.
"This can partly be achieved through education, such as Drive Smart courses in safe and fuel-efficient driving offered by the AA Driving School," he says.
"Courses are available free to at-risk new drivers through the AA Charitable Trust."
"In addition, the AA sponsors a new BTEC qualification in driving behaviour, and a new insurance product that rewards good driving is expected to be launched next year."
Young drivers can also get cut-price insurance from car makers on new models.
For instance, Mini Financial Services has extended its offer of a year's insurance from only £99 to buyers aged between 30 and 80 on new Mini Convertible and Clubman models registered by December 31. Younger drivers, aged between 21 and 24, pay £199.
:: Information: AA Insurance 0800 107 0680 and www.theaa.com; Tiger 0800 902 0600 and www.tiger.co.uk; Mini Financial Services 0800 0836 464 and www.mini.co.uk; Drive Smart details www.theaa.com/drive-smart.
Poundnotes
:: Six in 10 households (61%) are fearful of energy bills this winter, says price comparison site uSwitch.com, and 19 million households aim to cut their normal consumption. Nearly half (48%) have improved the energy efficiency of their home, and 24% want to do so before the cold weather arrives.
Ann Robinson, director at uSwitch.com, is alarmed by the thought that 17% of households claim to have had inadequate heat, or none or all, last year. It is vital, she says, to combine energy efficiency improvements with the most competitive energy plan.
:: So many savers grabbed one-year fixed rate deals at 3.95% from National Savings & Investments (NS&I) back in October 2009, a product which was 0.20% above its nearest rival and 100% guaranteed by HM Treasury, that it was soon withdrawn.
Now, says Andrew Hagger of moneynet.co.uk, money which NS&I sucked out of banks and building societies (the latter saw £2 billion withdrawn last October/November) is on the move again, mainly to fixed-rate bonds over one and two years.
The Barnsley BS (part of Yorkshire Building Society) one-year Online Bond at 3.05% gross heads the field, while other bonds promising 3% gross fixed for one year include the Post Office, First Direct and Bank of Cyprus UK. Tesco Bank promises 2.95%, while Northern Rock's 15-month bond pays 3.05%.
Hagger says: "The extra 0.05% from Barnsley is a cute move to maximise best buy coverage. With new products daily, the 3.05% rate could be topped soon."
Savers should also note that instant access savings are pretty close to fixed-rate bond rates, with the Post Office Online Saver at 2.90% only 0.15% below the best fix. That means a saver with £5,000 is only £6 better off (after basic rate tax) after locking away money for a year.
With the difference between the best three-year and the best five-year fixed-rate deals as narrow as 0.40%, there is little incentive to lock cash away for an additional two years.
:: Long-term savers are putting money into emerging markets of Asia - and gold, says Andy Parsons, advice team manager at The Share Centre.
The most popular funds in September, says The Share Centre, were Legal & General UK Index, First State Indian Subcontinent, Aberdeen Emerging Markets, Investec Global Gold and Invesco Perpetual Monthly Income Plus.
While the L&G fund topped the charts as the default option for those who let The Share Centre invest their Child Trust Fund vouchers, the First State and Aberdeen funds show the keenness of investors to gain exposure to emerging markets," says Parsons.
Incidentally, although online fashion retailer ASOS, still AIM-listed, has zoomed from 3p in 2003 to 1190p today, its sales surged 47% to £69.7 million in the second quarter of this year and The Share Centre still calls it a 'buy'.
A bold investor who put £1,000 in the company in 2003 is sitting on more than £360,000!
Parsons adds: "Launching country-specific sites has enabled ASOS to boost its international presence as it looks to emulate the success seen in the UK - the American site was launched in September, with France and Germany to follow."
"ASOS has no debt and rising levels of cash in the bank. There is still no dividend but we recommend the online retailer as a 'buy' for investors who accept a higher level of risk."
:: Savers are missing out on £12 billion a year because banks and building societies keep them in the dark about miserly interest rates, claims new research by Which?
The consumer champion found that almost half the 1,200 savings accounts available in the UK pay 0.5% interest or less, while one in four pays 0.1% or less.
:: High five savers
Phone No Rate Account Period Deposit Interest paid
AA www.theAA.com 4.55% (F) Internet Fixed Rate Five year bond £1 Yly
SAGA www.saga.co.uk 4.50% (F) Fixed Rate Savings Five Year Bond £1 Yly
Stroud & Swindon BS 08457 252423 2.90% 90 Day Notice 90 Days £1,000 Yly
Santander 0800 234 6065 2.85% Flexible ISA Issue 3 Instant £1 Yly
Halifax 0845 850 2582 2.80% Cash ISA Direct Reward None (H) £1 Yly
:: Top five borrowers
Phone No Rate Period Max% Adv Fee Incentive
HSBC 0800 494999 2.19% for term 60% £99 Yes
First Direct 0845 610 0100 2.59% variable for term 65% £99 Yes
ING Direct 0845 603 8888 2.85% disc until 30/11/12 70% none Yes
Furness BS 0800 220 568 3.29% (F) for three years 80% none Yes
Market Harboro BS 01858 412250 3.45% for term 80% £495 Yes
Code:
*K- Operated by Internet, Telephone, or Post
*F - Fixed
*P - Operated by Post
*B - Operated by Post/Telephone
*T - Operated by Telephone
*W - Operated by Internet
*H - Operated by Internet/Telephone
*S - Available only to those aged 50 or over
*R - Available to those aged 60 and over.
:: Source: Money£acts - Tel: 01603 476 476 (All rates subject to change without notice).
