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It is more expensive to insure a valuable sports car than a second-hand Fiesta. It is more expensive to insure a car in an area with a high vehicle theft rate than one with a low one. Motor premiums are higher for young men than for older women. Premiums are higher for those with a bad claims record than for those with a good one. Why should this be? It’s as though insurers somehow base the premiums they charge by reference to the average amounts they expect to pay out when claims are made.
However, we know that this is not the case. How do we know? Because claimant lawyers continuously tell us that if the legal costs that insurers pay out are reduced, as a result of the Jackson proposals and a lowering of the fixed fees in the Ministry of Justice Portal Scheme, it will not lead to a lowering of motor premiums (see example). This is because those greedy insurers will keep any savings for themselves as increased profit.
So, if motor premiums are unrelated to the amounts that insurers pay out, what are they based on?