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The good news for motorists is that car insurance premiums decreased by the largest amount recorded since the AA started tracking them 20 years ago. In 2013, a 14.1 per cent drop was recorded, meaning that in the last 2 years car insurance premiums have decreased by more than £100.
It is believed that a joint initiative between insurers and the DVLA will cut a further £15 off car insurance premiums. The aim of the new scheme is for drivers to provide insurance firms with their driving licence number. This data will ensure that insurers can record down a driver’s experience, any convictions they might have had and the date they passed their test.
It is thought that recording this type of information will prevent any errors from being made and streamline the insurance application process which will lead to the £15 reduction. It is thought that the car insurance cover could be further reduced by a Competition Commission inquiry which will lead to savings in the accident management process.
However, motoring bodies have come to question just how long the reduction in car insurance policies can go on for. Simon Douglas, director of AA Insurance, said: “I fear that the downward spiral will end with a bump. I expect the fall to continue at a slower rate over the first quarter of this year, but I think premiums will then level off.
“My biggest fear is that the falls are too great, premiums will bounce sharply up again later in the year which would not be good for the reputation of the industry.”
It is also well worth noting that paying annually for your car insurance as opposed to monthly is much more cost effective. This is because some insurers charge interest as high as 23 per cent for the privilege of paying monthly, increasing an annual average insurance premium by an extra £99.
A report published by insurance industry researchers Consumer Intelligence claims that 31 per cent of UK drivers pay monthly by direct debit for their car insurance, meaning that people are paying a total of £682 million per year interest by not paying their premiums upfront.