The average car insurance premium fell by over £50 over the past three months, according to the latest Premium Drivers report from comparethemarket.com.
In Q2 2020 (March–May 2020), premiums fell 7% to £702 – a drop of £53 compared to the previous quarterly price of £755. The decline in premium prices makes this quarter the cheapest since Q3 2016 when the average quarterly premium stood at £698, and highlights the impact that the coronavirus lockdown has had on car use and the wider insurance industry.
Over the past five years there have been a number of changes to Government policy which have forced premiums up, including hikes to Insurance Premium Tax (IPT), delays to the whiplash reform and changes to the Ogden rate which drove up the cost of claims. However, the insurance industry has faced significant changes over the past three months as Government restrictions have forced many cars off the roads, in turn reducing the volume of claims and pushing premiums down.
On a monthly basis, the average premium dropped by £33 from £712 in March to £679 in April followed by a £36 rise in May reaching a similar level to pre-lockdown of £715. April 2020 represents the lowest monthly premium since March 2016 when the average policy cost £658.
In May, the Financial Conduct Authority encouraged all car insurance providers to reassess the risk profile of customers which may have changed significantly because of the coronavirus. In addition, it asked motor insurers to waive cancellation and other charges associated with adjusting policies. This is welcome support for drivers as, despite fewer drivers on the roads and fewer claims, the average premium appears to only have temporarily dipped in April and is now back on the rise at a time when many households will struggle to afford higher bills.
The cheapest premiums available on the market have also fallen lower. Over the past three months, the average cheapest policy available cost £595, compared to £634 in the previous quarter. The gap of £108 between the cheapest and average premiums over the last quarter shows that shopping around remains an effective way to save money on car insurance. For younger motorists under 24 years old, the difference is much higher, with the average young person able to save £203 by switching to a better deal.
Dan Hutson, Head of Motor Insurance at comparethemarket.com, said: “The most common word used to describe the impact of the coronavirus is unprecedented. A drop in premiums, after years of rising costs, will be welcome news to the many families struggling financially as a result of the lockdown. That said, we would hope that premiums fall further over the coming months, as insurers are urged by the FCA to consider whether customers are currently getting value from their policies in the light of the current circumstances.
“For those looking to reduce their premiums further, there are a number of steps that you can take. Our research shows that the difference between the cheapest and average premium is £108. Switching provider is a quick and easy way to reduce the cost. If you already have a motor insurance policy and coronavirus has affected your driving habits, you may want to notify your insurance provider. For example, if you are no longer commuting and are going to be working from home for the foreseeable future, there is a chance your provider could reduce your premium. Equally, it is worth telling your provider if you no longer expect to use your vehicle as much as you normally would, as a reduction to your anticipated annual mileage could also positively affect your premium.”