MOTOR INSURANCE PREMIUMS
MADE SIMPLE
Working with the profession to
simplify the language of insurance
askciindy.com
UNDERSTANDING YOUR
MOTOR INSURANCE PREMIUM
Everyone driving on UK roads must have
car insurance – it’s the law but most people
have very little idea what actually happens
to the money they pay for it.
Our research suggests 17% of people don’t know how their
premium is calculated, 64% are worried about the rising price
of their premium and 66% believe insurance companies make
a big profit from providing the cover.
This guide explains how your motor insurance premium is spent.
64%
17%
I believe insurance
companies make a big
profit from providing
the cover.
I don’t know
how my premium
is calculated.
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66%
I am worried
about the rising
cost of insurance.
Where your money goes
2%
According to Government statistics, there were 35.6 million licensed
vehicles on Britain’s roads in 2015. Add all those premiums together
and that’s around £13 billion spent on motor insurance every year.
So where does the money you spend to insure your vehicle go?
20
%
%
29
Our research reveals that drivers think their insurance premium
is made up of the following:
Claims
where your
money goes
3%
Claim costs 32%
Profit for the insurance company 24%
Operating costs of the insurance company 13%
Government tax 10%
Other 4%
Don’t know 17%
15%
•
•
•
•
•
•
And 83% of drivers think insurance companies should be transparent
about what makes up the cost of the premiums they offer.
9%
Claims
In 2014 there were nearly 3 million claims made for private cars.
That equates to nearly £8 billion worth of claims. The average cost
of a claim is £2,664.
%
29
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Vehicle damage repair and replacement
Paying for uninsured drivers
Whiplash claims
Theft
Other personal injury
Insurance company staffing and costs
Catastrophic claims
(an insurance term for natural disasters)
Which actually adds up to 104%, more
than the money received from premiums.
The growth in personal injury claims
– and the impact on your premium
The rise in personal injury claims:
Personal injury claims make up 12% of all motor insurance claims
by volume, but a staggering 52% by cost.
2013
In 2014 there were 347,000 personal injury claims, costing the
insurance profession just over £3.7 billion.
2012
2011
Crash for cash
Crash for cash in a major issue. By deliberately causing
accidents, fraudsters are gambling with the lives of innocent people.
The Insurance Fraud Bureau clamps down on organised insurance
fraud and seeks to protect consumers from the effects of fraud.
It estimates that crash for cash insurance fraud costs the industry
£400 million each year. 1 in 7 personal injury claims are linked
to suspected crash for cash scams.
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2014
£3.7bn
2009
2010
Whiplash
Fraud
Theft costs
For every £1 paid in compensation for claims
under £10,000, another 76p is paid in legal
fees. Another cost that has to be passed
onto the motorist. This was tackled in part
by new legislation in October 2014, which
limits medical professionals to charging
£180 for an initial whiplash report, rather than
up to a £700 fee. With over half a million
whiplash claims each year, insurers estimate
these add £90 to your premium.
Fraudulent claims have increased 20% since
2012 and insurers must absorb the cost of
these too. On average these claims add an
extra £60 to your car insurance policy every
year. The House of Commons All-party
Transport Committee has told the government
it should introduce further measures
to cut fraud.
Thefts may be down thanks to vehicle security
improvements, but the cost of replacing stolen
vehicles continues to add to the costs for
motorists. The newest type of theft involves
hacking keyless entry. The Metropolitan
Police say this accounts for half of all vehicle
thefts now.
+76p
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+£60
Vehicle repairs
From a scratch to a bump right through to a write off, vehicle
insurance covers a huge range of accidental damage. And with
more technology in our cars, with in-car Sat Nav, parking sensors
and multiple airbags, there are more things that can break.
29% of your premium covers the costs of repair and the average
damage claim now is around £1,459. While drivers think that
the repair of a front bumper is around £300 the true cost
is much higher.
Headlamps
£235
Wing mirrors
£137
Front bumper
£450
Windscreen
£253
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Overheads
What this means for the future
Insurers don’t simply have to cover the cost of claims, they also
have the cost of running their business. Staff wages, advertising
and marketing, IT, office space, legislation, tax on premiums and
other expenses all add up to around 26% of the cost of your premium.
And yet our research revealed that people thought it only accounted
for 13% of their premium.
We hope this leaflet has gone some way to revealing the issues
behind the price of your motor insurance premiums. Rest assured
the insurance industry as a whole is constantly looking for ways
to help government improve legislation, and find ways to cut claim
costs. In this way we can help you get the best value from your
motoring, while keeping you covered for any eventuality.
So what percentage of profit does that leave
the insurer?
While people think that 24% of their motor insurance premium
is taken as profit for the company, the reality is very different.
The motor insurance nindustry has not made a profit since 1993
and, in fact, made an underwriting loss of £53 million in 2013.
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Remember if you have
any questions about
motor insurance, just
ask me, Ciindy at
askciindy.com
askciindy.com
@askciindy
/AskCiindy