Yahoo Finance Car insurance costs set to drop by £27 a year due to COVID
Premiums for car insurance are expected to be 6% lower this year than in 2020 because the pandemic has meant a change in car usage patterns and a fall in the number of claims made.
This means drivers can save £27 ($38) per policy, EY’s latest UK Motor Insurance Results has revealed.
“The drop in claims last year meant insurers were able to pass on savings to their customers through reduced premiums in Q1 2021,” said Tony Sault, UK general insurance market lead at EY.
Meanwhile car usage patterns changed “dramatically” over the past year as a result of the national lockdowns, the report said.
“As commuting patterns change, perhaps for good, we expect the downward shift in car usage and claims to continue – albeit not to the level seen in lockdown,” added Sault.
Premiums were relatively stable until the end of 2020 but then dropped by 7% in the first quarter of 2021, a fall of £32 per policy compared to Q4 2020, as insurers were better able to predict the effects of the latest restrictions.
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Whiplash reforms also have a part to play in the lower premiums. They came into effect last month and aim to reduce the legal costs associated with whiplash claims as well as the overall level of compensation.
Another reason for falling premiums in 2021 will be that insurers are looking to defend market share and retain customers after the Financial Conduct Authority (FCA) announced pricing reforms, which include higher compliance costs, EY said.
This comes as British drivers reportedly spend a combined £4.2bn a year on car maintenance, research by MoneySuperMarket found.
Meanwhile the EY report also found that the UK motor insurance market recorded its best underwriting profit since records began in 2020.
Sault pointed out that "while lower premiums is good news for consumers, the sector faces ongoing and significant underlying cost challenges – which were to a large extent masked by the lockdowns – and the rise in profitability in 2020 will likely be a blip".
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