All is not what it seems...

1 - Insurance Premium Tax (IPT) increased in November 2015 – Previously this tax was set at 6%, but George Osborne hiked it to 9.5% with effect from November 2015 – this saw premiums increase. But matters are not finished! A further hike to 10% is to coming into effect on 1st October 2016. So premiums can be expected to rise slightly more due to the actions of the treasury. The hike in IPT, which affects not only motor insurance, but also household insurance, pet insurance and legal expenses insurance, is expected to net the Treasury and additional £8.1 Billion by 2021.

2 - Solvency ii – a requirement from January 2016 for insurers to hold more capital reserves (money in the bank to meet claims and liabilities). So they can’t invest as much in stocks & shares or buy shopping malls etc. Believe it or not, motor insurers typically don’t make their core profits from underwriting profits (collecting more in premiums than they pay out in claims) although many have moved into this territory in recent years with Combined Operating Ratios (COR’s) as low as 85% (meaning for every £1 they collect in premiums, 85p is paid out in claims and operating overheads, leaving a 15% profit margin). Because they don’t have as much spare cash they can pump into investments, this has caused them to look elsewhere for increased profits – yep you guessed it – their customers; Crank up the premiums, crank up the profits! Funny how the increase in premiums has arisen at the same time insurers are able to report year on year improved profits.

3 - People wising up to the auto renewal fiasco . The insurance industry really is a strange old bird. How many industries or businesses do you know that actually kick a loyal customer in the shins by charging them more than a new customer? Yes, it’s a strange one, but a fact that customers who allow their insurance to auto-renew will generally be paying much more for the same policy than a new customer. Many consumer champions such as Martin Lewis & MoneySavingExpert.com have long advocated searching around for the best deal each year, rather than letting your existing policy renew automatically. Millions of people have enjoyed success with this approach and hit the price comparison sites to secure the best deal. The knock on effect of this is that the insurers are starting to see this pattern emerge and therefore the cheaper deals for new customers are starting to dry up as the bargain basement quote new punters get is usually allowing the insurer to at best break even or sometimes they cover the first year at a loss, hoping you will renew and they will make their money out of you in the future. Due to people becoming more savvy and shopping around, the insurers are offering new customer deals less and less. Overall this then pushes up the average premium figure. It is still worth shopping around though!

4 - Modern vehicles are becoming more expensive to repair , pushing up the cost of claims. Modern vehicles bristle with technology, such as sensors in bumpers, adaptive headlights, automatic parking systems etc. As more of us purchase newer vehicles via PCP plans, the more modern the “rolling stock” of Britain’s roads becomes and the more it costs to deal with repairs. Not a lot that can be done about this one. Insurers seldom make this point known though.

5 - We are in a “hard market” and there is “reduced capacity” . Insurers are required to hold a lot more of their money as liquid cash and / or very low risk investments to protect themselves from large catastrophes or crashes in the market. So any drop in value in the physical buildings they own i.e. shopping centres and their other investments mean they have to increase their cash reserves at the expense of their other investments. The result of the contraction in their investments and increase cash reserves means Insurers are unable to accept so many customers. As the Insurers become more picky with the customers they accept, they charge a higher premium for the customers they will accept. We had been in a soft market due to good investment returns which results in new Insurers entering the market which force the premiums down (a price war). When a recession or catastrophe hits, you enter a Hard Market and capacity reduces, Insurers pull out of the markets and premiums go up as there are fewer insurers competing with each other for the same customers.

It works in a circle though, as the premiums go up in the hard market, it attracts new Insurers into the marketplace and investments tend to pick up. This completes the circle by forcing premiums down and you return to a Soft Market until the next trigger event. Recently a Gibraltar based insurer, Enterprise Insurance, went bust. So again, fewer insurers competing for the business and the remaining insurers can charge more or be picky about who they are willing to insure.

The not so REAL reasons your insurance has been going up:

Fraud – Let’s be straight, fraud does exist. Any fraud is unacceptable, and those caught and convicted face prison and deservedly so. Those caught/rumbled whilst not automatically facing prosecution (it is up to the insurer to decide whether to prosecute or not) will have their cards marked and won’t be able to get cheap insurance or will simply be declined.

But the insurers over-play the fraud card and their figures are always a bit woolly and difficult to define in terms of what is pure “ fraud” being committed by say crash for cash gangs and what is “fraud” in terms of a policyholder perhaps failing to declare a conviction or a previous accident claim. They have also been known to include “suspected fraud” in their figures. So this supports a set of figures the insurers can claim show fraud is out of control and we are in the grip of a fraud pandemic, yet their year on year increases in profits seem to mirror the increase in people’s premiums and show that despite the alleged epidemic of fraudulent claims, the insurers are doing rather well.

There is a criminal justice system there to deal with insurance fraudsters and innocent motorists and those injured on the roads should not expect to have their rights to claim removed due to the actions of a small and stupid minority.

Whiplash – Again, there are stupid people who exaggerate the extent of their injuries or even being injured at all and there are nuisance calls made by scumbag accident management companies and marketing companies who encourage people to “have a go”. But this is the dregs end of an accident management industry which could do with a clean up by the new incoming regulator, the Financial Conduct Authority as well as a review of laws regarding telemarketing.

Let’s face it, any cold calling sucks, not just calls about personal injury, but also PPI, Charities, Boiler Suppliers and so on. It just needs to be banned and there needs to be an effective way of reporting the nuisance, such as pressing a certain number on your keypad when you receive the call, which then logs the call with your service provider or an independent monitor. This will stack up the evidence quickly and allow swift action to be taken against both the company AND the directors. This is all possible without the drastic steps the insurance industry have proposed to government and are about to go through the proposal stage.

The insurance industry want to extinguish whiplash claims by making them barred by law if the injury is “minor” (yet to be defined) and also preventing recovery of any costs on claims under £5000.00 in value. This would essentially prevent people from claiming for minor whiplash, but also box lawyers out of the system, leaving injured parties to fight insurance companies alone in the small claims court, or have to forfeit a good chunk of any compensation to pay lawyers under no win no fee arrangements. So the insurer pays out less, the injured party receives less.

Whilst this probably earns a round of applause from many people at this stage due to the constant drip-feeding of “we will lower your premiums if we get rid of these whiplash claims” in the media, independent ratings agency Fitch have just reported that their experts feel that insurers are unlikely to pass on any savings until at least 2018 if the reforms get passed through. Many organisations representing injured people feel the insurers are unlikely to ever pass on the savings and a recent article in the times accuses the insurers of failing to pass on savings from a previous round of reforms in 2013 resulting in substantial savings when lawyers fees were slashed by 60%. Since then, the number of claims being made has also declined. The substance behind the figures the insurance industry seek to rely on just don’t stack up.

What we say at Free Motor Legal is be careful what you wish for – Insurance companies are playing the public policy card i.e. what is good for them is good for Joe Public with promises of reduced insurance premiums, but the reality is that the insurance industry and their trade body, The Association of British Insurers, has for some time been misleading people why our premiums have increased (when have they revealed it is for reasons 1-5 above?). Can they really be trusted to deliver the savings they promise?

The government has previously admitted nobody will police the insurance industry on whether the savings will be passed on or not. Past experience would urge extreme caution here.

The promise from the insurance industry is an average saving of £50.00 if reforms are introduced (presumably all the reforms).

Free Motor Legal offer a free alternative to paying for motor legal protection insurance. A separate add-on policy insurers often sell for an additional £30.00 per vehicle on cover. Yet Free Motor Legal can rival the services the insurers offer without charging their members any annual premium or membership fees. In fact, membership is free for life. With over 30 million motorists in the UK potentially paying up to £30 a year extra, that is £900 million in additional premiums the UK is paying for a service Free Motor Legal can provide for free, saving British motorists up to £900 million each year. Further details can be found at their website www.freemotorlegal.co.uk