RBS joins the move to higher premiums for drivers

RBS joins the move to higher premiums for drivers

Drivers have been warned to expect higher insurance premiums after the Royal Bank of Scotland group raised prices by at least 5% with immediate effect. Its insurance division, which underwrites cover for some of the biggest motor insurers including Direct Line, Tesco and Churchill, said it needed to raise prices to cover the increasing cost of claims.

RBS has become the second company to try to force through higher prices. In September Britain's biggest insurer, Norwich Union, said it planned to increase premiums by an average of 16%. Some younger, higher-risk motorists were told to expect prices to be 40% higher.

"It has been well publicised in the market that the present position is unsustainable," said a spokeswoman for RBS. "Over the last four years the cost of claims has been rising by 5%-6% a year. At the same time the prices we charge to our customers have remained static. Our approach is to introduce increases on a progressive basis rather than presenting customers with an excessive and unpalatable one-off increase at renewal."

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Richard Mason, director of insurance at price comparison website moneysupermarket.com, warned that many RBS customers would be unaware that they are affected. "Millions of motor insurance customers won't immediately cotton on to the direct impact of this news, unless they are familiar with their policy small print. Direct Line, Privilege, Churchill, Lloyds TSB, Prudential, Tesco, Egg, Virgin Money and Nationwide are just some of the big brands backed by RBS, and motorists must not make the mistake of jumping from one RBS-backed brand to another in an attempt to avoid premium increases.

"The price hikes announced so far by RBS and Norwich Union, will impact on an estimated four out of 10 motorists, and we expect other major insurers such as Royal & SunAlliance to announce premium increases in the New Year."

It remains to be seen whether the companies can get consumers to pay higher prices. The car insurance market is one of the most competitive. Over recent years many new companies have launched internet services which have helped keep prices static.

The latest quarterly motor insurance report by the accountancy firm Deloitte, published this week, reported that average motor premiums have fallen by £10, down 2%, to £450 since the beginning of the year. Over the past year, car repair bills had risen by 6% and the cost of meeting personal injury claims by 10%.

Catherine Barton, insurance partner at Deloitte, said: "The growth of websites like moneysupermarket.com and confused.com is making it easier for drivers to shop around. If insurers want to win their business they need to offer the cheapest premiums."

Guardian Unlimited © Guardian News and Media Limited 2006