Car insurance market dysfunctional, says Aviva

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The car insurance market is “dysfunctional” and does not reward loyal customers, said the chief executive of Aviva, Mark Wilson.

He said firms were tempting in new customers with prices that were “too low”, which put prices up for existing customers.

Car insurance premiums have gone up by 11% in the last year, according to the Association of British Insurers (ABI).

The typical bill for an annual policy is now £484, it said.

“I think that the UK car insurance market is dysfunctional, I don’t think it works properly,” Mr Wilson told the BBC’s Today Programme.

“The entry level is too low and then it gets put up for all existing customers,” he said.

Aviva has developed a “suite” of products to be launched before the end of the year, which will help reward loyal customers.

“Let’s see how it goes,” Mr Wilson said.

Car insurance is just 2% of Aviva’s total business.


Shares in Aviva rose by about 0.5%, after the company reported operating profits up by 8% in the first half of 2017.

Sales of annuities, bulk annuities and equity release products all rose, with growth particularly strong in the UK.

The dividend was up by 13%.

However, Mr Wilson refused to say whether he thought he was paid too much.

“I think I’ll let the shareholders answer that one,” he told the BBC.

He said the company was happy to publish the ratio of its highest paid employee to its lowest, as soon as the government had determined how such a ratio should be expressed.

Aviva already pays its employees the National Living Wage and requires all its contractors to do likewise.

BA delays: Insurers clash with airline over expenses

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Insurers have clashed with British Airways over covering the cost of expenses incurred by passengers caught up in last weekend’s travel chaos.

The BA website suggests that customers should initially make a claim on their travel insurance for expenses such as meals during the delays.

But the Association of British Insurers (ABI) and a consumer rights expert say responsibility is with the airline.

BA said it would update the language, but its website has yet to change.

Saturday’s IT fiasco grounded hundreds of flights and disrupted the travel plans of tens of thousands of passengers around the world.

Passengers travelling in the EU are entitled to compensation, but insurers are angry with the airline for claims over non-flight expenses such as hotels, meals and phone calls.

BA’s website says: “You should make a claim with your travel insurer in the first instance. If you have expenses that either you were not successful in claiming or which are not covered by your policy, you may claim for only these expenses in the form below.”

However, the ABI contacted the airline earlier in the week pointing out that the initial claim should be to the airline, and only if that was unsuccessful would some policies pay out for these costs. A payout from the airline means passengers are more likely to get the full refund, rather than be liable for an insurer’s excess.

“No-one wants these passengers pushed from pillar to post,” said Malcolm Tarling, of the ABI.

This position has been backed by consumer rights campaigner Helen Dewdney.

“Looking at the claim for expenses online, once you start the online process, it suggests that you should claim from your travel insurance first. For EU flights, this is in breach of EU law – the airline must pay for reasonable expenses, For all flights, BA even says this as part of its terms and conditions,” she said.

“It is the airline’s responsibility to inform people of their rights and it does not appear to me that BA has done nearly enough.”

In an interview on Thursday, Willie Walsh, the head of British Airways’ owner IAG, said: “Clearly we will do everything we can to make up [for] the disruption they suffered.”

The airline said: “We have been encouraging customers that were affected by the weekend’s events to submit claims for their expenses, including those beyond flights, so that we can compensate them.

“We have created a dedicated page on providing customers with additional information on how to make a claim. We will be updating the wording on the claims page to ensure our customers have clear information.”

It has now also added a link on its homepage for compensation advice.

Questions still remain over exactly how the IT fiasco occurred. The airline said on Wednesday that a loss of power to a UK data centre was “compounded” by a power surge that took out its IT systems.

An email leaked to the Press Association suggested that a contractor doing maintenance work inadvertently switched off the power supply, although this has not been confirmed.

The email said: “This resulted in the total immediate loss of power to the facility, bypassing the backup generators and batteries… After a few minutes of this shutdown, it was turned back on in an unplanned and uncontrolled fashion, which created physical damage to the systems and significantly exacerbated the problem.”

Motor insurance premiums hit record high, as cars go hi tech

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Car insurance premiums in the UK have hit a record high, partly because cars’ increasingly complex electronics have made repairs more expensive.

The average annual comprehensive policy cost £462 in the last three months of 2016, according to the Association of British Insurers (ABI). Previously the highest figure was £443 in the spring of 2012. The rise comes in spite of government attempts to limit compensation payments and cut court costs.

One reason for the increase is a rise in the cost of repairing cars that have been in accidents, because of their increasingly sophisticated electronics. Buying in spare parts is also getting more expensive, due to the weakness of sterling. The average repair bill has risen by 32% over the last three years to £1,678, the ABI said.

chart of car insurance premiums

The ABI warned that premiums were likely to increase further, if the government went ahead with plans to review the so-called discount rate. When accident victims are given a lump sum in compensation, the sum is discounted to make up for the extra investment return they are likely to receive. Since 2001 the discount rate has been 2.5% – based on investment returns from government bonds. If that rate is reduced, insurance companies will have to pay out more – thus increasing premiums. “The sudden decision to review the discount rate has the potential to turn a drama into a crisis, with a significant cut throwing fuel on the fire in terms of premiums,” said Rob Cummings, the ABI’s head of motor and liability.

The government said it would make an announcement as soon as possible. “The Lord Chancellor has decided to review the discount rate to ensure personal injury claimants are fairly compensated,” said a spokesperson for the Ministry of Justice. “Due to ongoing consultation it is not yet possible to announce the review’s outcome.”


The cost of insurance has also risen because of a series of increases to Insurance Premium Tax (IPT). IPT went up from 6% to 9.5% in 2015, to 10% in 2016, and will rise to 12% in June 2017. Personal injury claims, such as whiplash, have also become more expensive, rising by 2.3% over the last year, the ABI said. However, the government is currently consulting on plans to cap compensation payments to accident victims, which it says could reduce annual premiums by £40 a year. It also wants more disputes settled in the small claims courts, which would reduce costs for insurance companies.

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