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In charts: how car insurance premiums have risen to an all-time high

The cost of car insurance has risen to the highest level on record, following a 40pc increase in the last two years.

Price rises have affected the whole market, but certain groups of drivers face the biggest hits.

The average of the five cheapest, fully comprehensive policies rose from £577 to £690 over the last 12 months.

Across the whole market, the average price jumped from £981 to £1,152 over the same period, according to data from the AA. The difference highlights the potential savings for those who shop around.

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How insurance costs have soared

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(£)How insurance costs have soaredAverage price of five cheapest comprehensive policies1994 Q21995 Q21996 Q21997 Q21998 Q21999 Q22000 Q22001 Q22002 Q22003 Q22004 Q22005 Q22006 Q22007 Q22008 Q22009 Q22010 Q22011 Q22012 Q22013 Q22014 Q22015 Q22016 Q22017 Q20200400600800Source: AA

As prices have risen, the value of shopping around has increased.

The cheapest insurance policies are typically loss leading. Insurers therefore rely on customer inertia after the first year in order to raise their pricest.

The savings on offer for those who switch to the cheapest policy each year are substantial.

At the beginning of 2010, the difference between the market average and the cheapest prices for a comprehensive policy was £215, compared to £464 now.

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Difference between market average and cheapest price for a comprehensive policy

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(£)Difference between market average and cheapest pricefor a comprehensive policy2010 Q12010 Q32011 Q12011 Q32012 Q12012 Q32013 Q12013 Q32014 Q12014 Q32015 Q12015 Q32016 Q12016 Q32017 Q1200300400500Source: AA2017 Q2● Difference between market average and cheapest price for a comprehensive policy: 463.84

The level of price increases experienced by consumers has varied significantly by age group, area and gender.

For instance, in Northern Ireland the cost of the cheapest policies increased by 3.5pc between the first and second quarters of 2017. In London over the same period that increase was 7pc, and in Anglia – the highest – it was 11pc.

Age wise, 50 to 59 year olds have suffered the smallest rise in car insurance costs this year, with a 6.2pc increase between the first and second quarters.

By comparison, 17 to 22 year olds have borne the heaviest price hike – with costs soaring by 10.6pc over the same period.

The biggest gender gap sits in the 40-49 year old age range. Between the first two quarters of this year, men in this age range experienced a 6.6pc price rise, compared to 9.6pc for women.

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Cheapest comprehensive policies by age group

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(£)Cheapest comprehensive policies by age group2017 Q12017 Q217-2223-2930-3940-4950-5960-6970+0500100015002000Source: AA70+● 2017 Q2: 580.97

A number of factors have been blamed for the dramatic increase in prices.

Insurance Premium Tax (IPT) has more than doubled since 2011, and a recent formula change has upped payouts for those who suffer long-term injuries. These are costs that have been passed on to customers.

Aside from policy changes, the main driver behind rising costs is insurers’ compromised ability to make money from their other activities, such as selling add-ons to policies.

A planned crack-down on fraudulent personal injury claims is intended to reduce insurance costs, but may not have the desired effect.

Michael Lloyd, the AA’s insurance director, said: “We are in a sharply upward cycle and premiums will continue to rise until competitive pressure once again forces a downward spiral – but that is some way off.

“I fear that the Chancellor may once again target IPT in the autumn Budget as a quick win to fill in some of the Government’s financial potholes.”

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