Hard-hit motorists get ton up warning

Latest figures from the AA show that the cost of car insurance policy has risen almost £100 in 12 months. The figures hammer home the need to shop around for the best deal.

The AA's quarterly index shows that the average comprehensive policy now costs £537 a year, £30 more than in January and £92 more than a year ago.

The 6% increase over the last quarter is not a one-off, but part of a continuing upward trend in rates prompted mainly by underwriting losses over the past five years.

"Insurance companies are forecasting a £1bn loss for 1999 and putting prices up by nearly 2% every month as a consequence," says Kerry Richardson, the AA's insurance managing director. "At the current rate of premium inflation, the cost of cover will have gone up by 26% at the end of 12 months."

The industry's continued losses, which stood at £1.4bn in 1998 and £1.1bn in 1997 - and the consequent rise in motor insurance premiums - are mainly the result of increased claims costs.

"Motor repair costs have gone up by 10% in the last year," says a spokesman for the Association of British Insurers (ABI).

The AA also cites the increased trend towards litigation following accidents, and new legislation which makes it easier for hospitals to reclaim the cost of treating accident victims which is expected to cost insurers up to £150m a year.

For every £1 taken in premiums, insurers are paying out £1.15 in claims, according to the AA. "Prices must increase if underwriters are to remain solvent and pay out claims in the future," says Mr Richardson.

Shopping around can cut the average £537 premium by 36% to a more palatable £346, though even these prices are rising every quarter. The "shoparound" premium is the average of the three lowest quoted by insurers in the survey.

"A lot of people don't bother to shop around," says the ABI. "They simply renew their existing policy each year and then have a moan about how much their premium has gone up. But it can definitely pay to shop around."

It's worth using a variety of routes to find the best quote. Try a good insurance broker or intermediary who can trawl a panel of major insurers to find you the best deal. If you have access to the internet, get online.

A good place to start is www.screentrade.co.uk. If you fill in one online form, it will search out the best quotes from a panel. Also check out the AA's own website, www.theaa.co.uk, which gets the best quote from a range of insurers and offers a 10% discount on premiums to internet buyers.

Compare these with quotes from a few direct insurers such as Direct Line, the largest provider of private motor insurance with 2.2m motor policyholders.

Finally, try going back to your existing insurer and asking if they can match the best quote you've found. One word of warning: if you find cover that is dramatically cheaper than other quotes received, do check that you are comparing like with like.

How to cut the cost of insurance

• The more people insured to drive a car, the higher the premiums. Adding a young person as a named driver to your policy can add 30% to the cost. CGU says that by switching from "any driver" to just policyholder and partner, you can save up to 15%.

• Limit your mileage. Some insurers offer a 10% discount if you drive less than 6,000 miles each year.

• Opt for a voluntary excess on top of the standard excess, typically £100. The AA offers up to 25% discount if you pay the first £150 of any claim while CGU gives £12 discount for a £50 voluntary excess and £24 off for a £100 excess.

• Fitting industry-approved security devices such as alarms and immobilisers, particularly to older cars which don't have them fitted as standard, can cut 10-20% off the cost.

• Consider driving a smaller or older car which costs less to insure than a new, racy model.

• Older drivers should seek out insurers which give up to 20% discount for over 50s.

• Tell your insurer if you can garage your car overnight. Some give discounts for this.

• Become a better driver. Newly-qualified drivers can get discounts by taking extra lessons under the Pass Plus scheme. Details on 0115 901 2633 or www.passplus.org.uk. Older drivers can obtain discounts from some brokers if they pass the advanced driving test.

• Switch from comprehensive to third-party cover - but only do this as a last resort, says the AA: "It may save money short term, but you may not be entitled to extras such as a courtesy car or legal assistance."