The ABI has urged the government to implement whiplash reforms on time to ease cost pressures on car insurance companies receiving low premiums

Car insurance premiums remained flat since last quarter despite extra costs paid by insurers (Credit: Pixabay)

Insurance companies experiencing high costs — in part due to the new Personal Injury Discount Rate — face increased pressure to keep car premiums low due to a competitive UK market.

The Association of British Insurers’ (ABI) latest Motor Insurance Premium Tracker — a quarterly report on the average premium paid by drivers — revealed prices stayed flat for consumers, falling by £1 ($1.30) on the previous quarter.

The drop was slightly less than last year’s £3 ($3.90) decrease, but the ABI expressed concern about the pressure building on providers — stating that the industry now needs the Civil Liability Act to arrive on schedule to provide financial respite.

ABI assistant director, head of general insurance Mark Shepherd said: “Motorists continue to get competitively priced motor insurance deals, but cost pressures remain.

insurance rate increase
Mark Shepherd, ABI assistant director to the head of general insurance policy (Credit: ABI)

“This summer’s Discount Rate change will do nothing but add to the cost pressures already being felt by insurers from more expensive vehicle repairs and theft claims.

“This makes it more important than ever that the whiplash reforms in the Civil Liability Act are implemented on time and in full.

“Now is also the right time to consider reducing the rate of Insurance Premium Tax, which has doubled to 12% over the last four years.”


How will the Civil Liability Act impact car insurance premiums?

The Civil Liability Act — frequently referred to as the “whiplash act” — is set to enforce a raft of reforms on personal injury claimants in April 2020.

Most notably, it will cap the amount of money claimants can seek for soft tissue injuries – which includes whiplash – after a motor incident.

Once the Act becomes active, legal advice will only be paid for on-road personal injury claims of more than £5,000 ($6,100), up from the current £1,000 ($1,220) mark.

According to the ABI, whiplash is the biggest cause of claims among UK insurance providers, with 1,500 made each day.

This results in significant cost impact that invariably means a higher premiums for drivers.

car insurance premiums
Whiplash can damage the neck and is the most common soft-tissue injury claim (Credit: PxHere)

Car insurance premiums fell to their lowest level for two years, with the average cost being £466 ($603).

This was due to the cost-savings expected by insurers after the whiplash reforms — passed in December 2018 — looked to ease their burden.

But excitement over expected savings was short-lived when the new Personal Injury Discount Rate was passed in July, which is why the average premium has remained flat at £468 ($606).

The ABI has been a vocal opponent of the new discount rate since it was passed, believing it will drive up premiums for drivers, which is why Shepherd insisted the whiplash reforms be implemented in full in April 2020.


Expensive vehicle repairs and theft claims

Two ongoing issues that add to the cost-burden on insurance companies are the growth of repair costs, which increase as car technology becomes more sophisticated, and vehicle theft.

According to the ABI, the repair bill for insurers rose to £2.3bn ($2.98bn) in the first half of 2019, an 11% increase on the same period last year.

The organisation put this down to innovations in vehicle design and technology leading to more expensive replacement parts, with the cost increases compounded by a weak pound when parts needed to be sourced overseas.

The cost of theft rose to £211m ($273m) in the same period, an 18% increase on the first half of 2018.

The ABI’s figures correlate to a general increase in vehicle thefts in the past five years observed by the UK Home Office, with both organisations believing the increase to be driven, in part, by sophisticated keyless car crime.