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Car Insurance -
Car Insurance Premiums and Stalled Prices |
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In 2007, following the floods that affected thousands of homes and properties in the UK, pay outs totalling over £3 billion were made as insurance policyholders filed claims to insurers. As a fallout of that there were predictions that in 2008 home and car insurance premiums would dramatically rise.
A couple of months ago, Datamonitor produced a report that suggested that the car insurance industry would become profitable by the end of next year.
One thing common to the above assertions is that they both mean more pains for consumers as premiums hike. This is because for the insurance industry to make more profit, according to AA Insurance, there has to be at least an annual premium increase of 20 per cent. In the case of premiums rising in 2008, there’s no gainsaying that car insurance premiums have in the past year recorded a steady hike, even as others costs merged forces to inflict pains on consumers.
Another important similarity is that none of these is likely to happen, easily. Reasons are that at the moment experts in the industry are not expecting car or home insurance premiums to rise further. In fact they believe the hike is, at the moment, stalled.
As car insurance premiums continued to hike steeply, the development caused concern among drivers. But in a new twist last week, figures from AA suggested there is a slowdown. Its index showed a slight fall by 0.5 per cent in the average premium quote for comprehensive car insurance, from £685.29 in the 2007 to £681.93 in the first quarter of this year.
Also, the average third-party fire and theft car insurance premiums saw a fall of 0.9 per cent to £893.50 in the same period. The initial figure in the last quarter of 2007 was £846.28.
In the same manner the average premium for combined buildings and contents cover collapsed by £4 over the same period. However, single buildings cover saw no change in its premium just as contents insurance rose by one per cent.
While these figures would mean a bit of respite for consumers, the story is not a very pleasant one for insurers. AA’s chief executive Andrew Strong argues that his company’s latest index gives a lie to the suggestion by Datamonitor that the industry would record more profit in 2008. “The latest AA Index shows that this is a far from realistic expectation,” he said.
In contrast the car insurance industry, he said, spends more than it is getting in the form of premiums. For example, insurers pay out £112 for every £100 taken in premiums.
Even as there is an urgent need to raise prices in order to meet costs, insurers fear that it would lead to a slump in market share, particularly in March, which is considered a peak purchasing month.
Although consumers would expect prices to keep falling, a situation where insurers run their business at a loss does not help this assumption. In the end there has to be compromise somehow. Mr Strong believes the best way this could happen is if the premiums, rather than remaining stalled, rise gradually. The insurers would make bits of profits while consumers pay a bit more. However, if it does not happen this way, he fears that it would get to a point that there would be a sudden huge rise and the consequence would not very pleasant for both consumers and insurers.
“If premiums don’t continue to rise at a realistic rate, there will be a point when large premium increases become inevitable. That would be unhelpful for customers and will damage the reputation of the industry, he argued.
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