Motor premiums rise on the back of floods

by Gill Montia

Story link: Motor premiums rise on the back of floods

This summer’s devastating floods are likely to cause car insurance premiums to rise.

This unexpected outcome can be attributed to the fact that some insurers have been subsidising losses in the extremely competitive car insurance sector, using profits from reserve funds.

Motor insurance experts have estimated that in recent times, car insurers have been paying out 11% more for claims and expenses than they received from the sale of policies.

UK insurers have already received approximately 60,000 claims from flood victims, and total claims for flood damage could amount to as much as £2.9 billion.

As a result insurers will be drawing heavily on their reserves and the cost of car insurance, which actually fell 2% in 2006, is expected to rise from 2008.

Increases of 10% and above are thought likely; Aviva has already announced a 16% increase in some motor premiums.

In the immediate aftermath of the flooding, reports as to whether or not home insurance premiums would increase varied.

Companies such as Norwich Union were criticised for increasing premiums almost immediately.

However, at this stage, increases in home insurance premiums are expected to be widespread.