Car insurance premiums have risen steeply in the last year at a rate of 5.9%, which is almost three times the rate of inflation as measured by the Consumer Price Index. The cause of this rise is being touted as an increase in the amount of compensation being paid out to accident victims. Higher medical bills and ongoing care arrangements are costing insurers huge amounts in compensation and this is being reflected in the premiums they charge.

In the mid 1990s the European New Car Assessment Programme was brought in as a measure of car safety across all car categories. It is now the accepted method for rating cars according to their ability to minimising the effects of a side or head on collision. Most new cars nowadays receive a 3 or 4 star rating due to better vehicle design and more safety features. The good news is that the likelihood of surviving a car crash is significantly higher in today’s vehicles. The bad news is lawyers are cashing in on this by pushing for higher sums of compensation even for accident victims with minor injuries.

Legal costs have also increased significantly over the years earning traffic accident lawyers the title of ‘ambulance chasers’. The insurance industry claims that the cost of car accident claims is rising by 10 per cent every year, in part because of the legal fees involved. At present the average claim takes just under a year to settle with some cases being open for up to two years. Two years of legal representation is going to cost a lot of money, which ultimately the insurers will end up paying. It seems like the legal system at the moment is too much in favour of the lawyer and until a simpler method of sorting out claims is devised compensation payouts and the insurance premiums which pay for them will continue to rise.

The Association of British insurers is currently lobbying the government to allow a quicker method of sorting out claims to be introduced. For small claims under £25,000 it has been suggested that a straight forward streamlined way of handling claims will mean fewer lawyers will need to be involved and bring down the costs of administering the claim.

However, it must be noted that the rising cost of compensation claims is not entirely due to increased compensation for the accident victim, but also due to the fact that newer safety features in cars cost more to fix and replace. Larger crumple zones and more airbags add to the cost of repairing the vehicle and this cost must be passed on to the drivers. Although due to the competitive nature of the insurance industry, premiums still need to be attractive in order to gain customers, not all of this cost will be charged in higher premiums.

But with 40 pence out of every £1 in a compensation claim going to the lawyers, it is clear that the rising cost of insurance premiums is down to the legal system and if we want this to change, a way needs to be found for handling compensation claims more effectively and with less legal intervention.

Author's Bio: 

Danielle is an author of several articles pertaining to Car Insurance. He is known for his expertise on the subject and on other Business and Finance related articles.