Auto insurance is going down for the first time in years – so why has my bill gone up?
There was good news for motorists this week, as it was announced that overall car insurance premiums had fallen 14% since the start of the pandemic.
This works out to an average of £ 87 according to a survey by comparison website Confused.com, letting motorists pay £ 538 per year on average.
This is consistent with other surveys of auto insurance prices during the lockdown period.
This means that for many people, auto insurance will be at its cheapest level for years to come.
Still, my inbox is full of people saying their renewal documents suggest their premiums will increase in the coming year. So what is going on?
How Covid Affected Insurance Premiums
In its most basic form, all insurance is risk-based. The more likely you are to make a claim, the higher the cost of your annual premium.
During the pandemic, we were largely confined to our homes, and unless a few rule breakers jump in their cars for day trips to Snowdonia or the beaches on the south coast, the nation has obeyed the rules.
In addition, all business trips, except essential ones, were also prohibited. This meant the cars weren’t on the road and were less likely to be involved in “claimable incidents”.
Of course, that doesn’t mean that all the risks are gone. Many cars are parked on the road, which means they can be prone to accidental or deliberate damage (or theft). Others had to go to the garage after the lack of use left the batteries dead.
Some enterprising insurers saw the lay of the land and realized that their customers expected to see some return on their annual premiums, as their cars gathered dust along the way.
So a few companies send checks for small refunds – usually around £ 25. A small amount, but it has worked very well with a lot of people I have spoken to.
How is auto insurance calculated?
The 14% drop in the price of insurance sounds fabulous, but dig a little deeper into the data and you might be surprised.
The actual drop in premiums varies widely depending on where you live in the UK – and prices in the most recent quarter have fallen on average by around 4%.
So if you expect to see a big price reduction when renewing, you might be surprised. You may even see an increase.
This is because insurance premiums are calculated by looking at a range of factors from where you live to your annual mileage, occupancy, and where your car is kept overnight.
Other factors can also reduce your premiums, such as how much excess you’re willing to pay, claim discounts, what incidents may be claimable, and whether you’ve installed a black box.
Why no-fault accidents can still cost you dearly
One of the most contentious issues in auto insurance is “the incident that can be claimed.”
It is inevitable that when you are the person responsible for an accident, you will pay higher premiums.
However, if you are the victim of an accident, your premiums may also increase if your insurer decides it makes you riskier.
Your insurance contract will require you to report “ claimable incidents ” – any incident where your car has been damaged and may require a claim – even if you don’t make a claim.
In the past, this has led to some pretty thorny issues where insurance premiums or future claims are affected when the insurance company has determined that a claimable incident has occurred within the past but was not reported.
The insurance industry is well aware that these decisions are not suitable for its clients and that the behavior of different companies varies considerably. So always ask what the rules are when signing up with a new insurer.
So if the prices go down, why am I paying more?
So why are some people paying more for insurance this year when costs generally go down?
Well, some decisions about insurance costs will come from your personal circumstances, but others can be caught in the “loyalty fee” trap.
In recent years, people have become more aware that if they stay with their insurer, their premiums are likely to increase year by year.
This is known as a loyalty fee because you are effectively charged more for staying loyal to the business, even though a new customer or another insurer might get a better deal.
It’s pretty hard to prove if you’re paying the price for your loyalty, but a few online checks should tell you if you’re overcharged. Just get quotes as if you were a new customer.
If you are overcharged, take screenshots and file a complaint with the insurer. You can even ask the company to reimburse you for the premiums if they cannot justify the premium increases.
Just to give you an idea of the scale of the problem, the industry regulator, the Financial Conduct Authority (FCA), found that in 2018, around 6 million policyholders were paying £ 1.2 billion more than they shouldn’t have. So they banned the practice.
FCA estimates that this will save us £ 3.7 billion over the next 10 years.
However, the new rules won’t come into effect until much later in the year (and possibly later, as many companies have complained that they don’t have enough time to make changes to their systems). So don’t assume you’ve been treated fairly!
If you need help with insurance issues, Resolver can help.
How else can I keep reducing costs?
We spoke with AA Smart Bail General Manager James Fairclough for further advice on how drivers can save on running costs.
- Do an audit
The first step to cutting costs on anything is to understand what you are currently paying.
Check the current costs of your car; include everything from fuel and maintenance, to financial payments, insurance and taxes. Make sure there aren’t any “quick wins” you might have missed, like debt consolidation.
- Buy 21 days in advance
Shop around for the best deal on your auto insurance when it comes time to renew to make sure you’re getting the best value for your money. You can find a better price if you try to find a new policy between 21 and 30 days before the existing policy expires.
Young drivers may also be able to save money by purchasing a telematics insurance product, which rewards them with a lower premium for driving safely.
- Get off the beaten track
Consider another form of car ownership. Renting a car can offer drivers a flexible solution that also helps them stay on top of their finances by consolidating all of their payments into one monthly expense.
- Do crafts
Minimize your maintenance costs by performing daily maintenance yourself. If you don’t regularly perform basic checks on your vehicle, you run the risk of an expensive bill that could have been easily avoided.
Be sure to give your car one more time before you take it in for its annual maintenance and MOT. Garages will charge for simple things like refilling your fluids, changing wiper blades, and replacing bulbs. These are easy to do yourself.
- Go electric
If you are planning to switch vehicles, you could save money by switching to an electric car, especially if you live in an area where low emission zone charging is low.
AA research has found that around half a million drivers could be “kicked out” of city centers when those zones come into effect.
- Slow down
You can reduce your fuel consumption by monitoring your driving style; Keep acceleration smooth and avoid sudden braking and cornering.
An AA study found that drivers who adopted environmentally friendly driving techniques reduced their weekly fuel consumption by an average of 10%. Keeping your tires properly inflated will also help your fuel mileage, as well as the safety of your car.
- Reduce size
Drivers of larger vehicles might consider upgrading from a large SUV / 4WD to a smaller vehicle. Not only would they save on fuel, it would also potentially help lower their insurance premiums and other running costs.