Research by the RAC Foundation has revealed that payouts for crash-related personal injuries are dramatically higher in Britain than in the rest of Europe. This is leaving UK drivers paying far more for their insurance premiums than their European neighbours.

To meet the long-term care costs of someone who has suffered catastrophic injuries in a road accident, compensation payouts can be as much as £10 million in Britain. By comparison, Germany and France offer up to £6 million and Sweden pays out as little as £600,000. So why is there such a disparity?
The key factor is how the medical and care costs are divided up between the state and the insurer. In some regions, such as Scandinavian countries, the onus is on the state to take on the lion’s share of the costs. This helps keep insurance costs down for the country’s motorists.

And now the really bad news…

In Britain though, our already high insurance costs are set to increase further as the government continues to ‘evolve’ the way in which personal injury payouts are calculated. Traditionally, compensation for injuries is based on loss of earnings and how much the cost of care is predicted to be over the victim’s lifetime. This figure also takes into account the predicted long-term interest – the ‘discount rate’ – that the injured could earn on that money. This was typically set at up to 2.5% and would be factored in when calculating the payout.

In early 2017, however, the government dramatically scaled the discount rate down to -0.75%, a significantly lower rate that has had the knock-on effect of insurers themselves now having to pay out more to victims. Now factor in a rise in insurance premium tax from 10% to 12% last month, plus the effect of bogus whiplash claims on insurance prices, and it’s created a perfect storm for drivers who are now experiencing rocketing insurance premiums.

The true cost of motoring

According to price comparison site MoneySupermarket, the cost of the average insurance policy is up from £474 in 2015 to £562 in 2017. It’s perhaps unsurprising that young drivers are being hit the hardest, with their average policy price now estimated at £1,322. Such increases could have serious ramifications beyond motorists’ bank accounts, as the RAC Foundation’s director, Steve Gooding, explains:

“Everyone should pay a fair price for insurance, but if people are priced out of the market, the danger is they choose to drive uninsured and that’s a risk to us all.”

Dealing with rising insurance costs

While rising prices for insurance premiums are set to continue, drivers can take steps to drive down costs. For instance, more and more young drivers are signing up to telematics technology that insurers install in their cars. These ‘black boxes’ monitor the motorist’s driving behaviour, such as speeding or excessive braking. According to research by telematics provider Ingenie, this helps on two key fronts:

• It reduces the number of crashes; one in five young drivers is involved in an accident within six months of passing their test. With telematics fitted, this figure drops to one in eight.

• It reduces insurance premium costs; installing the tech could see a reduction of up to 20% in premium prices for young drivers.

Adopting pay-per-mile insurance

While black box technology can offer some solace for cash-strapped motorists, what about those of us who only drive low mileages each year? One solution being touted by start-up company By Miles is a pay-per-mile premium. With a launch date set for later this year, the company will offer those who only use their cars occasionally the chance to benefit from lower premiums.

Using telematics, the driver will be shown the cost of their journey at the end of each trip via a smartphone app, with a bill sent out each month. Actual pricing has yet to be confirmed, but with insurance costs set to increase further in the months and years ahead, such schemes could well become the norm for the industry, not the exception.

Perhaps one day we’ll even end up with the ability to make pay-per-mile comparisons for each and every journey, much like savvy motorists who currently use petrolprices.com to hunt out the lowest fuel prices in their area. Time will tell.

Who do you feel is to blame for the current sky-high costs of insuring your vehicle? Is it insurers milking their customers? Or is the government exacerbating the situation? Let us know your opinions below.

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