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The good news for anyone who values the pound in their pocket is that car insurance premiums plummeted by the largest amount last year since the AA started tracking them 20 years ago. In 2013 there was a 14.1% drop, meaning that in the last two years more than £100 has been sliced off premiums.
More good news is that a joint initiative between insurers and the DVLA is expected to cut a further £15 from premiums. The aim is for drivers to provide insurers with their driving licence number. This will allow insurers to include every driver’s experience, their convictions and the date they passed their test. Cutting out errors like this and streamlining the insurance application process will lead to the average £15 reduction.
The cost of cover could be further reduced by a Competition Commission inquiry, which will lead to savings in the accident management process.
However, storm clouds are gathering. 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.’
Anyone who has bought insurance will have probably figured out that it’s cheaper to pay annually than by monthly direct debit. That’s because insurers charge interest at an average APR of 23% for the privilege of paying monthly. That puts an extra £99 on the annual average insurance premium of £922.
A report by insurance industry researchers Consumer Intelligence claims 31% of Britain’s drivers pay for insurance in monthly instalments by direct debit.
That means people are coughing up a scandalous £682m a year simply because they don’t pay their premiums up front. Obviously paying monthly is a sensible way to budget for car insurance. However, the report found that one insurer charges a hefty 31.9% APR for the privilege. Even the lowest APR was 9.9%.