How to drive down insurance premiums

As the cost of house insurance falls, motorists are seeing premiums rise. As Nic Cicutti discovers, it pays to shop around

Insurance premiums for most motorists are set on an upward trend over the next few months, according to new research. The cost of home and contents cover continues to fall for the time being, though insurers are predicting a heavy knock-on effect from the week of April's storms.

The average cost of car cover rose by more than 1.5 per cent in the past quarter compared with the previous three months, according to the AA's insurance arm. Home insurance dropped by 1 per cent over the same period.

Yet both drivers and homeowners could still save pounds if they bothered to shop around for the cheapest quote. In some cases, motorists could lop more than pounds 150 off the cost of an average comprehensive insurance premium of pounds 400 by making a few phone calls. Even homeowners could save pounds 34 on average by finding the lowest buildings cover, or double that amount if home and contents insurance is considered jointly.

The survey underlines the importance for motorists and homeowners of doing "insurance homework" every year, no matter whom they have taken out cover with.

Geoff Lowe, director of AA Insurance, says: "Most people love to get a bargain and it is well worth contacting a number of insurers for competitive quotes, or getting a broker do it for you.

"The recent floods and increase in claims, though, is expected to affect reinsurance premiums and we are predicting a knock-on effect to be reflected later this year."

The AA's survey involves 50 so-called "risks", typical policyholders selected on the basis of age, location, occupation, sex and type of car or property, depending on what is insured. Price movements are checked each quarter to see whether they rising or falling, with 37 of the UK's leading insurers being polled, including the cheaper direct telephone- based ones.

The survey found that while the cost of most motor insurance had risen by anything up to 3.5 per cent in the last few months alone, some drivers are still paying less than they would have been in 1994.

For example, a male vet in Northamptonshire would have paid pounds 717 to obtain fully comprehensive cover for his Mercedes 190. By April this year, insuring the same car would cost pounds 671, including insurance premium tax of 4.5 per cent.

The AA also finds that shopping around pays: the average cost of the three cheapest policies was pounds 150 lower than the overall average for comprehensive cover.

Similar results appear in the home survey. The average buildings premium is now more than 10 per cent lower than it was in January 1994, while contents premiums have also dropped by almost 7 per cent over the same period.

In one example, a four-bedroom bungalow in Edinburgh, which would have cost pounds 122 to insure in July 1994, would now cost just pounds 104, including insurance premium tax, a drop of more than 14 per cent.

The cost of home and contents cover has also fallen compared with the three months ago, with the same "risks" being almost 1 per cent cheaper for buildings cover and 0.24 per cent for contents, on average.

One new feature of car cover is that the average comprehensive policy now costs less than the average non-comprehensive cover. This, the AA says, is because those who take non-comprehensive cover are newer drivers who have not yet built up a no-claims discount. This is increasingly important in terms of reducing the cost of premiums. Moreover, the premium also reflects the risk represented by the driver, rather than the net replacement value of the car itself.