Drivers paying £800 million a year for insurance add-ons

UK motorists are paying more than £800 million each year for car insurance add-ons like breakdown cover and legal protection, which could be found cheaper elsewhere, new research has revealed.

An analysis of annual accounts from four of the country’s leading insurance companies – Admiral, Esure, Direct Line and Hastings – also found administration fees for changing details, and higher bills for those paying for insurance on a monthly basis, contributed to the £806 million figure.

One example cited by the analysis, carried out by the Daily Mail, found a driver paying £40 for legal protection when the same level of cover could be provided by an independent company for just £20. The research also found Admiral took an average of £64 from each car for add-ons.

In total, Admiral generated £203 million from add-ons in a year, Esure took £125 million, Direct Line brought in £179 million and Hastings raised £299 million. Admiral generated £56 million from drivers paying monthly rather than annually, while Hastings took £94 million from interest charges, and Esure charged £26 for drivers to change policy details.

Labour MP John Mann told the Mail: "Customers are being treated like a cash cow", but the Association of British Insurers said the industry was strictly regulated, explaining: "Insurers have to disclose fees and charges, and want customers to understand the scope of cover provided so that they can make informed decisions about the right policy for their needs. Consumers should shop around, comparing the policies on offer and prices.”

• Cheapest cars to insure 2018

Hastings insurance said: “Our ancillary fees and charges are in line with others in the market and our premiums are some of the most competitive”, while a statement from Esure explained that: “Instalment income has risen simply as a result of the company selling more policies and the higher average premiums being seen across the industry.”

Direct Line highlighted it did not charge administration fees for policy changes and monthly charges were communicated to customers clearly, while Admiral declined to comment.

Car insurance payouts hit all-time high

The amount of money paid out by car insurance companies following a claim reached an all-time high last year, with the average cost of a claim standing at £2,936.

In the final quarter of 2017 the average payout stood at £2,838, while over 2013 and 2014 that figure stood at £2,160.

Total payouts for the industry - totalling £8.1 billion - remained roughly the same last year as they did in 2016.

The increase in the average amount paid out for claims was partly due to rising repair bills, according to the Association of British Insurers (ABI), which published the figures. The organisation has previously cited increasingly complex and tech-laden cars as factors driving up the cost of repairs.

The ABI also revealed personal injury claims were on the up, standing at £10,816 on average for the final quarter of 2017 – the highest quarterly figure since the second quarter of 2016.

And while the total number of personal injury claims fell slightly to 320,000 in 2017, the ABI said that number should be significantly lower due to a fall in the number of road traffic casualties and whiplash claims.

Rob Cummings, the ABI’s head of motor and liability, said: “Despite motor insurance remaining a highly competitive market, cost pressures saw the average price paid for motor insurance jump by 9% to a record high in 2017. Putting a lid on excessive costs, which end up being paid for by motorists, remains a priority for insurers.

“This makes it all the more important for the Government to play its part, by pushing ahead with its reforms to personal injury compensation without further delay.”

Cost of car insurance reaches record levels

At the start of the year, the ABI revealed the average price of car insurance also hit record levels, with a fully comprehensive policy costing £481 in the last quarter of 2017, up nine per cent on the same period the previous year.

The ABI"s figures also showed the cost of cover had surged by 29 per cent since 2014.

The ABI cites rising repair costs, fraudulent whiplash claims and Insurance Premium tax as being behind the price rises, which have added an average of £40 to drivers’ annual insurance bills. 

Rob Cummings, head of mobility and liability for the ABI, said at the time the Government should act to reduce insurance costs: “The Government must urgently bring forward relief for motorists by introducing its reforms to create a fairer compensation system, and tackling low value whiplash style claims without delay, as well as freezing Insurance Premium Tax. It is time cash-strapped motorists got a break.”

Explaining the increases, Cummings said: “Changes to how compensation pay-outs are calculated, Insurance Premium Tax, more whiplash-style claims and rising repair bills are all piling on the pressure for cash-strapped drivers.”

Changes to the ‘discount rate’ – used to calculate how much insurers should pay in compensation cases - are also said to be hitting premiums for consumers.

Separate research by the AA, meanwhile, found car insurance premiums in the fourth quarter of 2017 were up 2 per cent over the same period in 2016. However, the AA’s figures are based on quotes, while the ABi’s are based on prices paid.

Nonetheless, the AA’s insurance director, Michael Lloyd, warned costs could still increase in 2018: “As we enter 2018, the reinsurance companies that underpin the consumer insurance sector are increasing rates quite sharply, reacting to the discount rate and that will find its way to the premiums drivers pay."

Lloyd said future price increases could be avoided, however: “Rises could be tempered if the government presses ahead with its planned reforms to curb the whiplash compensation culture and succeed in stopping cold-call law firms who try to persuade people to make claims following a car collision, even if they haven’t been injured.”

Which are the best car insurance companies of 2017/18? Our Driver Power survey ranks the top ten...