June 16, 2021

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Car insurance falling for the first time in years – so why has my bill gone up?

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There was some good news for motorists this week as it was announced that comprehensive car insurance premiums have dropped by 14% since the start of the pandemic.

That works out at an average of £87 according to a survey by comparison website Confused.com, leaving motorists paying £538 a year on average.

This matches other surveys of motor insurance prices over the period of lockdown.

It means that for many people, motor insurance will be at its cheapest level for years.

Yet my inbox is full of people saying that their renewal documents suggest their premiums are going up in the year ahead. So what’s going on?

How Covid affected insurance premiums

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Fewer people on the road has resulted in less accidents
(Image: Getty Images)

At its most basic, all insurance is based on risk. The more likely it is that you’ll make a claim, the higher the cost of your annual premium.

Over the pandemic, we were largely confined to our homes, and barring a few rule-breakers jumping into their cars for day trips to Snowdonia or the South coast beaches, the nation obeyed the rules.

In addition, all but essential travel for work was barred too. That meant that cars were off the road and less likely to be involved in ‘claimable incidents’.

Of course, that doesn’t mean all risk vanished. Many cars are parked on the road which means they can be subject to accidental or deliberate damage (or theft). Others had to go to the garage after lack of use rendered batteries dead.

Some enterprising insurers saw the lay of the land and realised their customers would be expecting to see some return on their annual premiums, given their cars were gathering dust on the drive.

So a few firms send out cheques for small refunds – usually around £25. A small amount, but one that went down very well with many of the people I spoke to.

How is car insurance calculated?

The 14% drop in the price of insurance sounds fabulous but delve a bit deeper at the data and you may be surprised.

The actual drop in premiums varies considerably depending on where you live in the UK – and prices in the most recent quarter are down on average by around 4%.

So if you’re expecting to see a big price cut on renewal, then you may be surprised. You may even see an increase.

That’s because insurance premiums are calculated by looking at a range of factors from where you live to your annual millage, occupation and where your car is kept overnight.

Other factors can also reduce your premiums like the amount of excess you’re willing to pay, no claims discounts, claimable incidents and whether you have a black box fitted.

Why no-fault accidents can still cost you

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You still have to report it
(Image: Getty Images/iStockphoto)

One of the most contentious issues to do with motor insurance is the ‘claimable incident’.

It’s inevitable that when you are the person at fault for an accident then you will pay higher premiums.

However, if you are the victim of an accident your premiums may also increase if your insurer decides this makes you more of a risk.

Your insurance contract will require you to report ‘claimable incidents’ – any incident where your car has been damaged and might require a claim – even if you don’t make a claim.

In the past, this led to some rather fraught issues where insurance premiums or future claims were affected when the insurance company worked out that a claimable incident had occurred in the past but wasn’t reported.

The insurance industry is well aware that these decisions do not go down well with their customers and there’s a lot of variation in how different firms behave. So always ask what the rules are when you sign up to a new insurer.

So if prices are falling, why am I paying more?

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Loyalty does not pay.

So why are some people paying more for insurance this year when costs are generally going down?

Well some decisions about insurance costs will come from your personal circumstances, but others may be caught out by ‘loyalty charges’.

In recent years, people have become more aware that if they stay with their insurer, their premiums are likely to increase year on year.

This is known as the loyalty charge because you’re effectively being charged more for staying loyal to the business, despite the fact a new customer or different insurer might get a better deal.

It’s quite tricky to prove if you’re paying the price for your loyalty, but a few checks online should give you an indication if you’re being overcharged. Just get some quotes as if you were a new customer.

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If you are being overcharged, then take some screenshots and make a complaint to the insurer. You can potentially even ask the business to refund you premiums if they can’t justify the premium increases.

Just to give you an idea of the scale of the problem, industry regulator, the Financial Conduct Authority (FCA) found that in 2018 around 6million policyholders were paying £1.2billion more than they should have been. So they banned the practice.

The FCA estimates it will save us all £3.7billion over the next 10 years.

However, the new rules won’t kick in until much later in the year (and possibly later still, as many firms have complained they don’t have enough time to make the changes to their systems). So don’t assume you’ve been treated fairly!

If you need help with any insurance issues, Resolver can help.

How else can I keep driving costs down?

We spoke to chief executive of AA Smart lease James Fairclough for some more top tips on how drivers can save on running costs.

  1. Do an audit
    The first step to cutting costs on anything is to understand what you are currently paying.
    Do an audit of your current car costs; include everything from fuel to servicing, finance payments, insurance and tax. Make sure there aren’t any ‘quick wins’ you could have missed, such as consolidating debts.
  2. Shop 21 days early
    Shop around for a better deal on your car insurance at renewal to make sure you are getting the best value. You may find a better price if you try to find a new policy between 21-30 days before your existing one expires.
    Young drivers might also be able to save money by signing up for a telematic insurance product, which rewards them with a lower premium for driving safely.
  3. Think outside the box
    Consider an alternative form of car ownership. Leasing a car can give drivers a flexible solution that also helps them stay on top of their finances by wrapping all their payments into one monthly expense.
  4. Do DIY
    Minimise your servicing costs by doing everyday maintenance yourself. If you don’t regularly perform basic checks on your vehicle you run the risk of an expensive bill that could have been easily avoided.
    Make sure you give your car a thorough once-over before taking it for its annual service and MOT. Garages will charge for simple things like filling up your fluids, changing wiper blades and replacing bulbs. These are easy to do yourself.
  5. Go electric
    If you are thinking of changing your vehicle, you could save money by making the switch to an electric car, especially if you live in an area with low emission zone charging.
    AA research has found that around half a million drivers could be ‘priced out’ of city centres as these zones come into force.
  6. Slow down
    You can reduce your fuel consumption by watching your driving style; keep acceleration smooth and avoid harsh braking and cornering.
    An AA study found drivers who adopted eco-friendly driving techniques reduced their weekly fuel consumption by an average of 10%. Keeping your tyres correctly inflated will also help your fuel consumption, as well as keeping your car safer.
  7. Downsize
    Drivers of larger vehicles could consider downsizing from a large SUV/4WD to a smaller vehicle. Not only would they save on fuel but it would also potentially help reduce their insurance premium and other running costs.

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