Technology Pushes Car Premiums To Record High Levels

December 11th, 2019
Technology

We are all fond of high tech and expensive cars as the zooming machines make way for an excellent sight on the roads. Again, most of the gizmo freaks love to explore the technicalities of the cars and have an obsession for trendy cars. However, such cars can make a big hole in your pocket due to the expensive repair charges and high insurance costs. Naturally, the repair cost of any high tech car would be more due to the complexities of the technical aspects of the machine.

As the number of such technically optimised cars increases year after year, the UK motor insurance industry also increases their premium costs accordingly. In fact, UK car insurance premiums have marked a record increase in 2016 when compared to the previous years. The companies suggest expensive repairs as the main reason for the increasing premiums. As per the reports from the Association of British Insurers (ABI), the cost of the average annual comprehensive policy reached £462 in the third quarter of the financial year. This is a strong rise when compared to £443 which was the cost of a comprehensive car insurance policy in 2012.

Such a rise has taken place even after constant measures from the government to keep the insurance costs low by limiting compensation payments and reducing court charges. The main reason is that the repair cost is quite high when a technically evolved car meets with an accident. Statistically, there has been a 32% increase in the average repair bill in the past three years and now the repair costs are estimated to be around £1,678, as told by the ABI.

Technology Pushes Car Premiums

Image courtesy: BBC

The ABI also predicts that there would be a further hike in premiums, especially if the government executes its plans to review the discount rates. The discount rate is the amount deducted from the lump sum provided to compensate accident victims to balance the extra investment return which they would receive. The discount rate has been 2.5% since 2001 and if the rate is reduced as per the government’s plan, then insurers would have to arrange higher payouts which may lead to increase in premiums.

Rob Cummings, the ABI’s head of motor and liability talked about the chances of a decrease in discount rates by saying that “The sudden decision to review the discount rate has the potential to turn a drama into a crisis, with a significant cut throwing fuel on the fire in terms of premiums.” The government is expected to announce its decision about discount rates in the near future. The Ministry of Justice spoke on the topic and said that “The Lord Chancellor has decided to review the discount rate to ensure personal injury claimants are fairly compensated. Due to ongoing consultation it is not yet possible to announce the review’s outcome.”

Other factors that badly affected the motor insurance premiums are the increase in IPT which showed a considerable increase from 6% to 9.5% in 2015, 9.5% to 10% in 2016 and will soon increase to 12% in June 2017. Whiplash claims also showed an increase of 2.3% when compared to the previous year according to the ABI. At present, the government is working on charting a plan to cap compensation payments to accident victims and suggests that this measure would cut down annual motor insurance premiums by £40 a year. It also stresses on solving the conflicts in small claim courts to reduce the cost bared by the insurance companies.

Overall, the IPT, repair charges and whiplash claims are the main factors causing a hike in car insurance premiums. These factors would have a stronger effect on cars with high tech functionalities and thus, owners of technically rich cars would have to pay high premium costs.

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