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Car insurance rises to hit young drivers the hardest
Tax rises and compensation changes are about to make car insurance a more expensive necessity than it already is for many and it is young drivers that will be hit the hardest. For young drivers, it is the insurance bills, usually totalling in the thousands, which are the most crippling part of owning their first car.
New changes announced by the government regarding compensation payments and the way they are calculated are likely to affect motor insurance premiums for everyone. These changes will take place over the next few weeks and will see the average driver facing hikes of between £50 and £70 on their car insurance policy.
However, young drivers may see their policy rise by as much as £1000 taking their overall annual car insurance cost to £2000 or more. Car insurance is already at its highest level and these changes will only make it more difficult for many to be able to afford to drive, own a car and insure it.
So what exactly are the changes which are set to push up car insurance premiums?
Compensation payments to victims of life-changing injuries
The way compensation for these types of accidents is awarded will be changing based on the discount rate. When money is awarded, the amount received is reduced due to the interest which could potentially be earned through investment. For the past 16 years, the rate has been set at 2.5% but it is now being reduced to -0.75% which means more money will be awarded to victims so insurers will be paying out more.
Estimates from accountancy firm PwC point towards an additional cost of £50 to £75 a year for the average driver paying £450 a year for a comprehensive policy. As young drivers are usually responsible for the accidents which are serious enough to prompt insurance pay-outs, they are to be heavily penalised with an increase to their premiums.
Mohammad Khan, UK general insurance leader at PwC, spoke to The Guardian about these changes; “Drivers aged under 25 cause 85% of the serious injury accidents. They disproportionately affect those serious injury claims… From a pricing perspective, the people more likely to cause those accidents will have far greater premiums.”
Insurance premium tax
Insurance premium tax is added on to the cost of car insurance policies and this is set to rise to 12% next month. Just seven years ago, the tax stood at 5% and the steady rises over the last few years has only helped to push prices of car insurance policies up further.
Again this will affect younger drivers the most as they currently pay around two and a half times more on their car insurance than the average driver will on their policy. Simon McCulloch from Comparethemarket, commented on the rise in this tax and the effects it could have; “They have less disposable income with which to weather these storms, so we are quite worried about the effect of young drivers trying to stay mobile,”
The big price rises may push some young people into measures such as claiming they are not the main driver of their car in order to reduce the cost and dodge the huge price rises. McCulloch warned against this though; “I think there are two possible negative outcomes. The first is that young drivers simply can’t afford to drive… or maybe they will cut corners on that insurance and will get themselves in a lot of trouble.”
The Association of British Insurers (ABI) describes the changes as a ‘crazy decision’ and feels it is important for the car insurance sector to have an environment which doesn’t encourage practices which are unhelpful or illegal.
What can you do about it?
With the scale of the changes being too big for insurance companies to absorb the full cost, it is obvious that there will be price increases for all drivers. The best ways to lower your insurance premium come from looking again at your policy, your car and your driving style.
Some things to look into include:
- Downgrade your car to a less popular model
- Find a safer place to park your car overnight
- Consider a telematics box to monitor your driving
- Check all details are correct on your insurance policy
- Put an older, more experienced driver on your policy. It can help to lower the cost but they must not be named as the main driver of your car if that is not the case.
Regardless, it seems that younger drivers will be facing big price rises in the cost of their insurance premium over the coming months making an already expensive part of driving even more costly.