PREMIUM DRIVERS REPORT DECEMBER 2016 Your quarterly motor insurance savings index
Introduction 2016 has seen soaring premiums for British drivers. The eleventh iteration of comparethemarket.com s Premium Drivers Index from comparethemarket.com, which tracks the difference between the cheapest and average motor premiums comes at a time when yet another hike in Insurance Premium Tax, combined with seasonal pricing increases have pushed premiums to record highs. The previous Premium Drivers report, published in September, estimated that the average motor insurance premium would reach over 700 by the end of 2016. As predicted, between Q3 (June, July, August) and Q4 (September, October, November) 2016, drivers who automatically renewed their policies with the same provider have seen their annual motor insurance costs rise by an average of 17 from a quarterly average of 697 to 714. Average* and cheapest** premiums have reached their highest levels since Premium Drivers began. In November alone, average premiums hit 738 per motorist a year on year increase of 9%, equating to 63. Cheapest premiums also saw yet another increase this month to 608, up 40 (7%) from 567 in November last year. This steady increase becomes even more pronounced when analysed over time. Between September and November 2012, the average premium cost 559 meaning that insurance has risen by 155 over the past four years. The cheapest motor premiums have also seen an increase, rising 119 over the same four-year period. The Premium Drivers index shows that the winter months have historically equated to a rise in premiums so this quarter s results are in part a reflection of the natural seasonal price uplift inherent in the market. Prices also have typically fallen in January and February so the next quarter will be crucial in determining whether this recent rise is merely a seasonal price hike or instead indicates that prices are set to keep spiraling into 2017. The rising cost of motor insurance can also possibly be attributed to the hike in Insurance Premium Tax (IPT), the last hike of which was announced in the Autumn Statement in November this year. IPT has now been increased three times by the Treasury since 2014, doubling the tax from 6% to its new rate of 12% from June 2017. As a direct result of IPT, analysis from comparethemarket.com estimates that drivers will have to pay 109 more for their insurance than they did two years ago. But there is still some hope for motorists this Christmas. As premiums have risen, so too have the potential savings to be made from shopping around. The difference between cheapest and average premiums hit 130 in November this year, up from 107 for the same month a year before, and up 43 from 87 since the same period in 2012. In a rising premium market, comparing providers remains the best way to offset some of the increases we may see over the next quarter and make the market as competitive as possible. * When the average price is referred to, this is the mean average of the top five cheapest prices presented to a customer, where a consumer has clicked through to buy. Buying from the top five cheapest prices presented represents 90% of all car insurance sales. ** When the cheapest price is referred to, this is the average cheapest price presented, where a customer has clicked through to buy. 2
The Savings Variable The Premium Drivers Index reveals the monthly percentage difference or the savings variable between the cheapest and average quotes across all age groups. This is tracked throughout the year and compared quarter on quarter. The savings variable tells us about current and historic prices, it also provides insight into the motor insurance sector. It highlights cyclical trends and allows comparethemarket.com to make statistics-driven predictions on the future direction of the motor insurance market. If the difference between the cheapest and the average price is narrowing, it suggests competition is improving; if the price disparities are widening, then it suggests competition is weakening. Key Statistics Quarterly savings variable rises to 17.2%, the largest percentage difference between cheapest and average premiums since the Premium Drivers Index began in September 2012 Savings variable for November hits 17.6%, up nearly two percentage points from 15.9% in November 2015 Widening gulf suggests competition has fallen even further, potentially pushing up prices into the New Year comparethemarket.com s Premium Drivers research has found that the savings variable in Q4 (September - November) 2016 rose to 17.2%, equating to the biggest difference between cheapest and average premiums since records began. This figure represents the fifth successive quarterly rise since Q3 (June-August) 2015 when the savings variable stood at 15.8%. Over the last quarter, the savings variable expanded by 0.8% as providers pushed up their prices towards the end of the year. In September, the difference between cheapest and average premiums stood at 16.8%, rising to 17.2% in October and hitting unprecedented highs of 17.6% in November 2016. The monthly savings variable has risen by nearly two percentage points over the year, up from 15.9% in November 2015. A comparison of the savings variable over the past four years suggests that competition maybe stagnating in the motor insurance market as external factors, such as IPT and an increase in fraudulent whiplash claims, are forcing providers to increase average and cheapest premiums alike. In Q4 2012, the savings variable was 15.6%, rising to 16.1% in Q4 2013 and 16.5% in Q4 2014, before falling slightly a year later to 16.2% in Q4 2015. As the price disparity widens to 17.2% this quarter, this could be a strong indicator that competition is falling further still. There is a seasonality to motor insurance pricing which has historically seen premiums rise in the fourth quarter of every year. It could therefore be seen as unsurprising that prices have again increased in Q4 2016. However, unlike in previous years, 2016 has experienced a jump in the savings variable every single quarter, suggesting that competition may be particularly weak and there is little downward pressure being applied to premiums at the moment. 3
The savings variable has expanded for the fifth consecutive quarter, so it seems that the rising cost of motor insurance is set to continue into next year. Motorists who auto-renew their policies this winter will be at the sharp end of price hikes. While external factors such as the seasonality of motor insurance and the recent increase in Insurance Premium Tax, which is passed directly onto motorists, have played their part in pushing up premiums, our analysis suggests that 62% of people stay with their existing car insurance provider when their policy is up for renewal. This inertia sends the wrong message to insurers that motorists are content with their current cover, even if prices increase every year. Increasing competition in the market place is the only way to truly reduce prices and, for motor insurance, that means getting more people switching. Dan Bass Head of Motor Insurance, comparethemarket.com Savings variable across all age groups year on year December 2015-2016: 2015 Month Savings variable August 15.91% September 16.03% October 16.63% November 15.94% December 16.58% 2016 Month Savings variable January 15.88% February 16.13% March 16.70% April 16.83% May 17.10% June 17.25% July 17.00% August 16.82% September 16.82% October 17.27% November 17.63% 4
Premium Drivers: Savings Variable 750.00 17.2% 650.00 16.7% 550.00 450.00 350.00 250.00 150.00 16.2% 15.7% 15.2% 13.00% 50.00 12.00% 9 101112 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 2012 2013 2014 2015 2016 Savings variable Cheapest price Average price 5
What s the cost? Key Statistics Quarterly cost difference between the average and cheapest premiums has grown to 123 the highest point since Premium Drivers began and the 10th successive quarterly price rise The average motor premium has risen by 63 (9%) year on year to 738 in November 2016, and up 165 (28%) from 573 in November 2014 The cheapest policies are also increasing in price, rising 40 (7%) from 567 to 608 over the past 12 months The cost of motor insurance in the UK is at its highest since the Premium Drivers Index began to track premiums data four years ago. In November 2012, the average premium across all age groups cost 561 but has risen 176 (31%) to 738 for the same month in 2016. The cheapest premiums available on the market have also increased, rising 133 from 474 in November 2012 to 608 last month. Even within the last three months, motorists have seen a steady rise in the cost of insurance. The average premium in September stood at 696, rising to 708 in October and hitting 738 last month a jump of 42 across the quarter. The trend is a contrast to the previous quarter when premiums fell by 7 between June and August from 701 to 694. The index shows that the summer months are traditionally a cheaper time to buy car insurance, with providers historically upping their prices in the final quarter. However, even as prices have increased the potential savings to be made have also risen. For those who shop around on their car insurance, the average saving has risen consecutively for the past ten quarters since Q2 (March-May) 2014, when the price difference stood at 87, to 123 in Q4 (September November) 2016. The cost of motor insurance at the moment is an unwelcome gift for most motorists this Christmas. Jumping from 696 to 738 over three months is a pretty large increase, and one which few motorists will be happy to pay. The potential saving of 123 shows that auto-renewal prices and shop-around quotes are getting further and further apart, which may suggest that insurers are increasingly relying on customer inertia and are upping their renewal prices accordingly. The only way to mitigate these rises and encourage competition amongst providers is for consumers to shop around every year. Dan Bass Head of Motor Insurance, comparethemarket.com 6
Average Price Difference Per Quarter Average price difference per quarter 120.00 110.00 100.00 90.00 80.00 March - May June - August September - November December - February March - May June - August September - November December - February March - May June - August September - November 2014 2015 2016 Cheapest vs Average Motor Insurance Premium 140 130 120 110 100 90 80 70 60 Sep 12 Oct 12 Nov 12 Dec 12 Jan 13 Feb 13 Mar 13 Apr 13 Mar 13 Jun 13 Jul 13 Aug 13 Sep 13 Oct 13 Nov 13 Dec 13 Jan 14 Feb 14 Mar 14 Apr 14 Mar 14 Jun 14 Jul 14 Aug 14 Sep 14 Oct 14 Nov 14 Dec 14 Jan 15 Feb 15 Mar 15 Apr 15 Mar 15 Jun 15 Jul 15 Aug 15 Sep 15 Oct 15 Nov 15 Dec 15 Jan 16 Feb 16 Mar 16 Apr 16 May 16 Jun 16 Jul 16 A u g16 Sep 15 Oct 15 Nov 15 2012 2013 2014 2015 2016 7
Regional Drivers: Capital Costs Key Statistics Combined price of car and insurance costs UK motorists an average of 13,112 London is the most expensive place to insure a car, costing an average of 1,460 The most popular car amongst UK drivers is the Kia Sportage The combined value of a car and its corresponding insurance premium sees UK motorists spend on average 13,112 to get on the road, and that cost does not even include the additional cost of fuel, road tax and add-ons such as breakdown cover. However, the cost of owning a car varies significantly across the country, research by comparethemarket.com has found. London is by far the most expensive place to insure a car with premiums costing on average 1,460 over 800 more than in South West, the cheapest region to buy motor insurance, where premiums are less than half that price at an average of 636. Apart from London, two further regions break the plus 1,000 motor insurance barrier. The West Midlands is the second most expensive place to insure a car, with premiums costing on average 1,171, and the North West comes in third where the average premium costs 1,045. Londoners also own some of the most expensive cars, with the average vehicle in the capital valued at 10,232. Only motorists in the East of England have more expensive tastes, with the average vehicle valued at 11,689. Drivers in Yorkshire pay the least for their cars, with the average vehicle valued at 7,274, followed by drivers in the West Midlands who spend 7,379. Our data shows that the most popular car amongst UK drivers is a Kia Sportage, which costs around 13,688 and has an average annual insurance premium of 389. Of the top ten most popular cars identified by comparethemarket.com, the most expensive is the Ford Kuga which ranks in ninth place and has an estimated value of 20,187 and an annual premium of 500. The Mercedez Benz A Class is ranked eighth out of the top ten most popular cars but is the most expensive to insure with an average premium of 1,555. In London, the most popular is the Nissan Qashqai, which has an average value of 10,416 and costs an average 822 to insure in London. The cost of motor insurance is well known for being a postcode lottery as providers assess different areas as having different levels of risk. Motorists in cities such as London are paying over double for insurance compared to other parts of the country, as claims are more likely to be made in urban areas where there is a greater risk of a collision or of car crimes such as vehicle theft. Whilst it is hardly practical to change where you live in order to bring down your insurance, there are other steps drivers can take to reduce their premiums: Telematics policies which monitor how safely you drive are a good way to bring down costs and reward responsible motorists. Motorists living in urban areas could reduce their premium by parking their car off the main street or purchasing an alarm, immobilizer or tracking device in case of attempted vehicle theft. Many people still make the mistake of failing to shop around for the best deals and instead accept their current insurer s quote, which, as our data shows, is likely to get more expensive at the point of renewal. Dan Bass, Head of Motor Insurance, comparethemarket.com 8
Region Average Car Cost + Insurance Top Ten Most Average Insurance Popular Cars Premium East 12,481 London 11,692 North West 10,580 Scotland 10,070 South East 9,919 North East 9,881 Wales 9,872 East Midlands 9,586 South West 9,581 West Midlands 8,549 Yorkshire 8,150 Kia Sportage 2015 390 Hyundai ix35 403 Nissan Qashqai 567 Kia Sportage 2013 490 Vauxhall Mokka 449 Vauxhall Insignia 790 Toyota AYGO 691 Mercedes-Benz A Class 1,556 Ford Kuga 500 Volkswagen Passat 533 Methodology All data, other than that referenced in the footnotes, is sourced from comparethemarket.com. When the average price is referred to, this is the mean average of the top five cheapest prices presented to a customer, where a consumer has clicked through to buy. Buying from the top five cheapest prices presented represents 90% of all car insurance sales. When the cheapest price is referred to, this is the average cheapest price presented, where a customer has clicked through to buy. All premium data refers to motor insurance products featuring comprehensive, third party fire and theft or third party cover. 9