Motor insurance is set to rise again after another Government announcement. The insurance industry has been given another excuse to increase premiums just months after the Chancellor announced another increase in the tax on insurance premiums adding around £25 to premiums. Now an average increase of £50 to £75 is on the way thanks to the new way that compensation for accident victims will be calculated.
The insurance industry is rubbing its hands with glee and telling us how much more we will have to pay because compensation payments to those seriously injured will increase under a new formula from the Ministry of Justice.
And, of course, it is us that will pay for these increases, probably many times over as premiums are increased by as much as the industry can get away with.
New formula will cost policyholders more
When large payments are awarded in the courts a formula has until now been used to take into account what interest can be earned on the millions when they are invested to provide income for the rest of the injured person’s life. This has traditionally assumed that they will earn 2.5% a year, but now the argument is that they will earn less than nothing because of historically low interest and gilt rates.
This new formula will have been produced in cahoots with the Treasury so it is even worse news for all of us. It tells us that while inflation will be pushed up by these insurance increases there is no expectation that we will be able to earn any money on our savings at all for the foreseeable future. And that also means that the historically low annuity rates paid by insurance companies will not be increasing any time soon.
One insurance company alone reckons that its profits will be hit by £200 million so that is a lot for us to make up.
Yet another premium rise
The industry was quick to tell us how much more that they will have to pay out, and to suggest that young drivers could have their premiums increased by £1000. This will lead to yet another increase in premiums in time as those of us who pay for insurance as more people drive uninsured because they simply cannot afford the premiums. Last year we were told that premiums had to rise by an average of £40 to cover the cost of claims involving uninsured drivers.
Insurers will be hoping that we all allow motor insurance policies to be automatically renewed without questioning the enormous increases. We must not let that happen. When prices are rising there is all the more reason to question premiums and make sure that we are not paying more than we have to.
Insurers like an excuse to increase premiums
The industry likes an excuse to push up premiums. Cheap petrol meant we drove more and had more accidents they claimed. Up went the premiums. Poor roads mean that cars are damaged by potholes. Up went premiums. Older drivers drive expensive cars with parking devices that push up the cost of some accidents. Up went premiums.