The cost of general insurance policies is predicted to rise in 2020 thanks to a combination of factors which all add to the price insurers charge - and it's not to do with insurers bumping up premiums to boost profits.
Why would my car insurance price suddenly increase?
An increase in car theft
When it comes to car insurance, there are many factors working to bump up costs. Firstly, car theft is on the increase. According to the Association of British Insurers, claims for the theft of vehicles more than doubled from £42 million in 2013 Q3, to £88 million in 2018 Q3.
More expensive cars are being stolen, increasing the average claim for a stolen car to over £8,000 in Q2 2018 (up £3,500 from 2013 when records began).
The vulnerability of some cars to keyless entry theft, where thieves intercept the signal between the keyless fob and the car, is of particular concern to insurers.
Personal injury claims
Another big cost burden to insurers that is passed on to policyholders is the cost of personal injury claims from car accidents.
The government made changes to the calculation of personal injury compensation (the so-called Ogden discount rate), which is used to work out the size of the lump sump that victims receive from insurers to cover the cost of future care.
An increase in the rate (from -0.75% to -0.25%) adds to the pressure on insurers’ costs, which will likely be reflected in higher premiums.
Cars are more expensive to repair
Sophisticated vehicle technology pushes up insurance costs, simply because repair costs are rocketing.
Advanced driver assistance technology systems such as automatic emergency braking, speed limit devices, blind spot and parking sensors help reduce accidents however, they are typically located in parts of a vehicle vulnerable to damage from impacts (i.e. bumpers and wing-mirrors) which makes repairs much more complex and expensive.
Insurers pay out over £12 million a day to repair damaged vehicles. The increasing use of sophisticated technology has also resulted in insurers categorising more vehicles as uneconomical to repair.
Brexit could also be blamed for higher motor insurance costs this year. With economic uncertainty already causing a fall in the value of the pound, this has increased the cost of imported cars and replacement parts – further adding to the cost of vehicle repairs.
Insurance fraud increases the cost of cover for all motorists. Industry figures on detected fraud show that car insurance scams are the most common and most expensive, with 55,000 dishonest claims worth £629 million detected. Most (80%) involved personal injury fraud ranging from staged crash for cash frauds to opportunistic scams.
Insurance Premium Tax
Insurance Premium Tax (IPT) - a tax on general insurance policies bought in the UK - also adds to the cost of cover.
IPT applies to home and pet insurance as well as car cover, though life and mortgage insurance is exempt. The standard rate - currently at 12% - was introduced in the 1993 Budget at a rate of 2.3%. Since then it’s been increased six times. After rising to 6% in April 2015, the rate doubled to 12% in June 2017.
There is also a higher rate of 20%, which applies to travel insurance, electrical appliance insurance and some vehicle insurance.
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Why would the cost of home insurance increase?
When it comes to home insurance, climate change and bad weather can cause a spike in claims, such as Storm Ciara and Storm Dennis.
Though one event will not usually push up property insurance premiums across the board, if you have made a claim or claims during the year this may impact on your premium at renewal, depending on the cost of the claim.
Finding affordable cover
While the cost of insurance is rising, it’s not worth scrimping on cover if you want to protect your family and assets.
You can take some steps to keep the cost down, such as comparing quotes from different companies when it comes to buying new cover.
Make sure you study the terms and conditions and any exclusions so you know exactly what you’re buying.
When it comes to renewal time, dig out last year's documents and compare the price.
If there is a very large increase compared with the previous year, make sure your insurer can justify it.
Typically, switchers can save up to £202 a year on car insurance and up to £273 on home insurance, according to Compare the Market.
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