Revealed: How the cost of your insurance has changed over the last 20 years

Do you feel that you are paying more for car and home insurance than you ever have before? Well, new research from the AA has revealed how the cost of the main types of insurance have changed over the last two decades.

The research has revealed that since 1994, the cost of motor insurance has almost trebled while, in contrast, the cost of home insurance has remained relatively constant. Keep reading to find out more.

Why have car insurance premiums risen so much?

The AA began tracking the quarterly premiums paid on new insurance policies in the UK in 1994. Since then, research has revealed that the cost of motor insurance is now around three times what it was twenty years ago while home insurance costs roughly the same – although buildings insurance has become more expensive since 2008.

According to the AA figures, comprehensive motor insurance cost an average of £921 in the fourth quarter of 2014. Twenty years earlier, the average cost of a policy was only £327. So, why is car insurance now much more expensive?

Government figures have reported a 40 per cent decline in the number of road accidents between 1994 and 2013 even though the number of vehicles on the road has increased by around 10 million. It is therefore not a higher incidence of claims that has pushed up the cost.

The more likely explanation is that a spike in personal injury claims has led to the rise. Between 2006 and 2011 alone the average cost of motor insurance doubled. Rob Cummings, manager of general insurance at the Association of British Insurers (ABI), says that a major cause of this increase was a rise personal injury claims, in particular for whiplash. According to the ABI, more than 1,500 whiplash claims are made in the UK every day, adding £90 to the average annual premium.

Since 2012, motor insurance costs have fallen by more than a quarter after intervention from the government. Legislation banning ‘referral fees’ paid by personal injury lawyers and a limit on ‘success fees’ have seen the average car insurance premium fall from its high of £1,279.

Why have home insurance premiums remained constant? 

While car insurance costs have risen over the last 20 years the cost of buildings and contents insurance has remained reasonably static.

The average cost of buildings insurance is around 22 per cent higher than in 1994 while the average cost of contents insurance is 5 per cent lower than it was two decades ago.

Mr Cummings from the ABI believes this is because of increased competition between insurers and the popularity of comparison websites which has driven down the cost.

In addition, homes have become safer. Government figures show that the number of domestic building fires attended to fell by 41 per cent from 2000-01 to 2013-14 while domestic burglaries in 2013-14 were down by two-thirds compared to 1995.

Buildings insurance prices can also be affected by the weather. Higher premiums tend to follow harsher winters when pipes burst and roofs are damaged or after severe floods. The Financial Times reports that ‘while homeowners facing the greatest risk of flooding can expect very large increases to their premiums, the government has proposed a national flood insurance fund — known as Flood Re — to reduce their premiums.’

Flood Re will subsidise the cost of home insurance for around 350,000 households although will add an average of £10.50 to a combined buildings and contents policy.