LONDON – Norwich Union, Aviva’s UK insurance division, became the first big name to hike the premiums in response to spiraling costs. On Thursday Norwich Union announced that it would hike car insurance premiums by 16 percent over the net year in the country.
“We’ve stuck our head above the parapet, but you can expect to see the market following our lead,” a company spokesman said. “We may lose some market share, but the key is profitability.” Tough competition has managed to keep insurance premiums under tight control even though the costs of repairs as well as injury claims have gotten out of control.
Norwich Union said that the premium hikes would come into effect from this month. For drivers with good records, their policy premiums will be raised by 6 percent, while high-risk policyholders may find themselves paying 40 percent more. On an average premiums are set to rise by 5 percent in the first six months.
Norwich Union spokeswoman explained that the profitability in the motor insurance market was very less. “Intense competition driven by technology has forced premiums down to an unrealistic level,” she said. “We would expect to see a number of other companies following.” Analysts say Norwich Union’s action may well act as a catalyst for other companies to follow suit.
The Association of British Insurers said the move was understandable since there have been no significant hikes in premiums since 2003. “A rise in the number of staged accidents and subsequent false claims has pushed up costs by an average of 5 per cent and a rise in the number of uninsured drivers has further forced up cost by a similar amount,” a spokeswoman said. “The increased accessibility of fast cars has helped to fuel the number of personal injury claims – you only have to look at how the price of used cars has gone down.”
In mid-afternoon trading yesterday, Aviva shares were off 5-1/2 pence at 739.