Car insurance premiums in the UK have reached a record high, driven by rising repair costs due to increasingly complex vehicle electronics. The average annual comprehensive policy cost £462 in the final quarter of 2016, surpassing the previous peak of £443 in spring 2012, according to the Association of British Insurers (ABI).
The ABI attributed the increase to a 32% rise in average repair bills over three years to £1,678, partly because of sophisticated electronics in modern cars. The weak pound has also made spare parts more expensive. Additionally, a series of increases to Insurance Premium Tax (IPT) — from 6% in 2015 to 12% in June 2017 — have pushed up costs.
The ABI warned that premiums could rise further if the government reviews the 'discount rate' used to calculate lump-sum compensation for accident victims. Currently set at 2.5% based on government bond returns, a reduction would force insurers to pay more, increasing premiums. Rob Cummings, ABI head of motor and liability, said: 'The sudden decision to review the discount rate has the potential to turn a drama into a crisis.'
Personal injury claims, including whiplash, have also risen by 2.3% over the past year. However, the government is consulting on capping compensation payments, which it says could cut annual premiums by £40. It also wants more disputes settled in small claims courts to reduce insurer costs.
