SIX months ago, Norwich Union, Britain’s second biggest motor insurer, gave a grim warning to drivers: its premiums would have to rise by between 16% and 40% to meet rising claims, especially from rocketing personal injury compensation claims. Norwich Union’s lead was followed by other giants in the sector. Royal Bank of Scotland, whose brands include Direct Line, Privilege and Churchill, warned of “double digit” rises in premiums, while Royal & Sun Alliance also agreed rises were inevitable. In the last quarter of 2006, says AA Insurance, the average annual car insurance premium “rose sharply to its highest ever level” – virtually double the figure recorded in July 1994, when its AA Index began. The average premium of £408 in July 1994 hit nearly £806 by December 2006. Third party, fire and theft cover soared to an average £999.45 – bought mainly by young drivers who can’t buy comprehensive cover when they first get behind the wheel. Says Ian Crowder, at AA Insurance: “For every £100 insurers took in motor premiums in 2006, they paid £109 in claims. “While repair costs of accidental damage to vehicles has risen, the biggest problem is the bill for settling personal injury claims which is rising at the rate of 12% a year as ‘No win, no fee’ companies tell people they can win damages after an accident.” But as we approach the spring peak for car insurance sales, those grim warnings of last autumn are fading into the background. Major rivals, including Esure, Direct Line and Churchill, are running huge campaigns promising to undercut rivals. In fact, says Richard Mason, insurance specialist at leading price comparison site moneysupermarket.com, Norwich Union’s 40% threat was aimed at young drivers, many so accident prone that insurers like them to take their business elsewhere. Mason points out: “Norwich Union actually said its premiums would rise by an average 16% – and possibly by no more than 6% for careful, older drivers with good safety records.” In fact, the latest AA Insurance Index shows a rise in premiums of 3.4% in the final quarter of 2006 – and something similar is expected in the first quarter of 2007. | 
Article
