Coronavirus: Car Insurance Premiums May Drop Soon
Car insurance is rarely cheap, especially for younger drivers. But the coronavirus pandemic may very well bring the price of premiums down over coming weeks and months…
A Rise…
The average car insurance premium currently sits at £755. That’s actually a rise of £24 when compared with the previous quarter. It’s also a sharp rise from the third quarter in 2018, when the average was just £708. In fact, figures compiled by Compare The Market show that prices are now approaching the peak of 2017, which sat at a menacing £758. For a bit of perspective, the lowest average recorded in 2012 was £559. A number of factors affect average car insurance premiums. These include changes to the personal injury discount rate and insurance premium tax (IPT). IPT is calculated as a percentage of the annual cost of car insurance; this naturally hits younger drivers the most. Younger drivers fork out around £134 on IPT each year in comparison to £77 for other drivers. But this trajectory, for all drivers, could be about to change.
And A Fall?
Lockdown measures mean that traffic levels have reached levels not experienced since the 1950s. In other words, the vast majority of motorists are obeying the government’s advice to stay at home. In theory, then, that means significantly less claims being filed. This could potentially cause car insurance premiums to drop; at least by the second half of 2020.
Dan Hutson, head of motor insurance at Compare The Market, has said that the lockdown could finally cause rising prices to tumble. He explained, “following a period of reducing premiums, motorists will be disappointed that premiums have continued to rise. This spiralling cost of insurance is thanks, in part, to hikes in Insurance Premium Tax”. He added, “IPT remains a fundamentally unfair tax, as those that can afford it least pay the most. IPT is calculated as a percentage of the annual cost of insurance, which means that those who have higher premiums pay higher tax. This unfairly penalises young drivers, who usually pay higher premiums. The rising cost of running a car, particularly for younger people, is making driving a luxury for many who see it as necessity”.
Hudson concluded, “while the impact of the coronavirus is still unclear, the reduction in car usage could result in a reduction in premiums around the UK. The Government has reported a near 70 percent reduction in motor vehicle use across the country. With mileage reducing, this is likely to result in significantly fewer claims, which could in turn mean that insurers can offer lower prices to consumers”. So, there just might be a light at the end of the tunnel. Whilst car insurance premiums have risen rapidly over the years, the national lockdown may bring them back down over the coming months; that’ll be a welcome relief to many households already facing financial hardship.
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