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Is the cost of car insurance falling or rising?

Last month we reported how it seemed that drivers could expect the cost of their car insurance to fall but now the news appears to be telling a different story. There’s a lot of speculation at the moment about whether we’ll be paying more or less for car insurance; but what is actually happening right now that will affect how much we pay for cover?

Cost of insurance rising or falling?

In December it was announced that The Government was planning to change the way that personal injury compensation would be calculated. These proposals focused on claims that are made for minor injuries, such as whiplash, in a bid to reduce the amount of compensation being paid out. The new rules would also serve to reduce the incentive for fraudulent whiplash claims and would in turn pass huge savings on to drivers.

However, further changes were suggested in February that could have actually increase the cost of car insurance by paying out more compensation to somebody that sustains a permanent injury.

When somebody sustains a life-changing or permanent injury in an accident, they often receive their compensation as a lump sum payment. The amount that they receive is adjusted, using a “discount rate”, according to how much interest they could earn by investing the money. Under the new legislation that has been put forward the discount rate would be lowered from 2.5% to minus 0.75%, meaning that more compensation would be paid out to those left seriously injured.

It was feared that the newest round of proposed changes would see the cost of the average car insurance premium rise by £75, with drivers aged 65 paying up to £300 more and young drivers being hit even harder with their premiums rising by up to £1,000.

The Association of British Insurance (ABI) has described the new proposals as “crazy”, with a potential additional cost of £3billion being passed onto insurance companies who will have no choice but to pass the cost on to their customers.

It seemed that shortly after the announcement that The Government were considering a U-turn, amid major backlash from the key players in the UK insurance industry. Chancellor of the Exchequer, Philip Hammond, called for an urgent review and assembled an emergency summit with the leading providers to discuss the proposals.

At the moment though there are no signs that the chancellor will put these changes on hold and as a consequence it’s likely that 36 million drivers will be left to cover the additional costs, with £75 added to the average car insurance premium.


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