If you’re a UK driver, then you’re used to the annual increase in the cost of motoring. Cars are a money sink that savages your finances. But even though deaths on the road are on the way down, the price of car insurance premiums continues to rise.
Figures show that people in the UK are now paying more than ever before, thanks to policy changes by the government. The average person is now paying more than £208 extra per year, thanks to a combination of tax and personal injury factors, pushing the price up.
Car owners are now paying a third more for their insurance than they were previously. In 2015, the average motorist paid £551. Today it’s more than £735.
Why Is This Happening?
The reason price has been going up isn’t to do with rampant capitalism or price gouging by insurance firms. Instead, it all comes down to punitive changes in the law by the authorities.
Higher Insurance Premium Taxes
The government has long charged taxes on insurance. Yes, that’s right: you pay the government money to protect the assets you bought after your income was taxed. Back in 2011, the standard rate insurance premium tax stood at a relatively low 6 per cent. But every few years since then, the government has increased it. First, it was 8.5 per cent, then 10 per cent. Today it stands at more than 12 per cent, meaning that it has more than doubled since the start of the decade.
Why the government is doing this is not entirely clear. The standard rate of insurance tax applies just as much to home insurance as it does to car insurance, meaning that people are paying more for insurance overall, not just motoring.
Changes To The Discount Rate
The discount rate is a tool that courts use to determine how much should be paid out drivers in the event of a personal injury that wasn’t their fault. In March 2017, the government decided that it was going to cut the discount rate from 2.5 per cent to -0.75 per cent. This change had the effect of substantially increasing the amount of money insurance companies had to pay out if a driver was owed compensation.
Insurers, therefore, had no option but to raise premiums to cover their increased costs. The average driver was, from their perspective, a far greater liability.
The good news is that drivers might benefit from lower car insurance premiums in the future. The government is currently introducing legislation due to come into force in 2020, which will make it more difficult for drivers to make whiplash claims. At the moment, many drivers are claiming whiplash even if their health isn’t affected by it in any way. The government hopes that by tightening the rules and capping payouts that it can reduce the amount of money that people pay overall in their premiums.
Since the passing of the Civil Liabilities Act, insurance premiums have fallen from £790 to £690 in February 2019, marking a reversal in the current trend.