The latest AA data recently revealed that the average car insurance premium had fallen by over 19 per cent in the last year. The cost of cover may have been falling but you may still be amazed at where each pound of your car insurance premium goes.

A leading insurer has calculated exactly where your car insurance payment goes, from providing the cover to the profits and costs of the insurer. And, you may be surprised by the results. Keep reading to find out more.

Just 4 per cent of car insurance premium goes to insurers profits

One of the UK’s biggest insurers has revealed exactly where your average car insurance premium goes. Aviva has looked at its own claims experience and data from the trade body the Association of British Insurers (ABI) to establish how the average £358 car insurance premium is spent.

The insurer has also worked out that more than £26 of the average premium is spent on luxuries and holidays – by ‘accident victims’ who make claims for whiplash and other injuries.

Around three quarters of the cost of your car insurance (74 per cent) is paid out in the form of claims. Of this £265, £2 goes towards fire claims, £4 to windscreen claims, £8 to theft, £56 to third party damage, £69 to own damage and £126 to third party personal injury.

The next biggest expense, at 16 per cent, is the insurer’s own marketing and distribution costs. Tax – in the form of insurance premium tax – is 6 per cent. Finally, just 4 per cent of the premium goes towards the insurer’s own profit.

Insurer highlighting the issue of personal injury claims

Aviva has highlighted the data is as part of a campaign to alter the way compensation is paid for whiplash victims. By identifying just how much of the average driver’s premium ends up in the pockets of other drivers, the insurer says it wants to shine a light on those people who claim fraudulently.

Instead of paying supposed whiplash victims a cash sum, Aviva and other insurers want to provide therapy or clinical rehab. The hope is this would cut the number of fraudulent claims made often by ‘crash for cash’ incidents where multiple vehicles full of passengers all claim for whiplash injuries.

In its latest annual collation of fraudulent claims data, the Association of British Insurers said fraud involving car insurance was the most expensive and common. In 2013 the number of dishonest claims stood at 59,900 with the value of these claims totalling £811 million.

Aviva has calculated that if injury compensation was made only in the form of therapy, not cash, it would cut the annual bill by £1 billion per year, reducing the average driver’s car insurance premium by £50.

As part of its research, Aviva has also looked at how people who receive personal injury compensation spent their money. In 2014, under half of recipients (47 per cent) spent the money on therapy or medical treatment while almost a quarter (24 per cent) used the cash to reduce their debts.

21 per cent used the money for a holiday while 19 per cent said they spend the compensation on ‘luxuries’.

Black box insurance could also help to cut fraudulent claims

As well as providing therapy rather than cash, insurers have also suggested the increased use of ‘telematics’ or ‘black box’ technology as a way of cutting fraudulent claims. Here, a device in your vehicle records and transmits speed information about your speed and braking.

This April, a court threw out a £54,000 injuries claim made by three people thanks to a black box. The telematics device fitted to their Vauxhall indicated that the injuries being claimed were implausible based on the speed and driving recorded by the black box.