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Car insurance premiums are coming down - so why are 70% of drivers missing out?

Motorists are seeing car insurance premiums fall for the first time in three years (Danny Lawson/PA)

Car insurance premiums have fallen for the first time time in three years – thanks in part to the crackdown on rogue whiplash claims.

The average premium in the first three months of 2018 was £768, down by 2%, or £13, on the same period last year, according to research by comparison site Confused.com.

But three in five motorists saw prices rise – simply because they did not shop around when it came to renewal time.

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It also highlighted how men continue to pay higher rates than women, on average, with the industry claiming that was because women generally drive smaller, less powerful, less expensive motors.

What’s the background?
The industry says rising costs can be traced to government policies. Chancellor Philip Hammond has upped the tax people pay on insurance premiums from 6% to 12% over the past three years – although there was no change in the last budget.

The hike in IPT is thought to add more than £51 a year to household insurance bills – home and contents, cars, travel etc.

Secondly, the government also changed something called the Ogden rate. This is how insurers work out how much compensation is owed to someone with a life-changing condition as the result of, say, a traffic accident.

Courts setting a lump sum compensation payout make an assumption about how much interest the victims can earn on the money. The lower the interest rate, the higher the lump sum has to be.

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This time last year, the government cut the rate from 2.5% to -0.75%, which pushed up both compensation payments and insurance prices.

Many drivers are still missing out on savings but not shopping around (Victoria Jones/PA Images via Getty Images)

So why are prices falling?
Firstly, the insurance industry lobbied ministers hard over the Ogden rate changes and in September, the government said it would review the rate. A new rate of between 0% and 1% is likely to come into effect soon.

Confused.com said insurers had perhaps over-compensated and pushed premiums up further than they needed to go to deal with the initial cut and that premiums had since been softened.

Secondly, costs for insurers have eased off after the government reformed laws to crackdown on whiplash claims.

Justice secretary, David Gauke told MPs last month that injury claims relating to road traffic accident are 50% higher than a decade ago, despite the fact the UK has some of the safest roads in Europe.

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False claims cost the industry an estimated £1bn a year – costs that are passed onto consumers.

With the crackdown on rogue claims firms, however, insurance claims are falling as are premiums.

How much are motorists saving?
Teenage drivers have seen the largest fall, now paying £118 less than in April 2017 – but that still takes their average premium to almost £2,000.

Men are paying £95 a year more, on average, than women. Even though European law has outlawed discriminating on gender grounds, men generally drive more expensive and more powerful cars, pushing up the average figure.

The average male driver aged 17 to 20 pays £2,348 on average, compared with £1,699 paid by women of the same age. The cheapest average insurance is paid by female drivers between 61 and 65, at £363.

Confused.com said that thousands of motorists were still paying too much because they do not shop around when it comes to renewal time.

Three in five are hit with a “loyalty penalty” of £45 – because they auto-renewed with their current insurers instead of looking for a better deal.

“It’s clear that many motorists are not seeing these savings reflected in their renewal letters, so it’s more important than ever to shop around if they want to get a better deal,” said Amanda Stretton, from Confused.com.