Both motor and home insurance are getting cheaper, say new figures from the British Insurance Brokers’ Association (BIBA) and Acturis.

Motor insurance premiums fell by an average of 4.4% in 2014 while home insurance, encompassing both buildings and contents insurance, dropped by 4.1%.

The costs fell in every quarter across 2014, but premiums for both fell fastest during the first half of the year.

The BIBA-Acturis Insurance Price Index compares the actual premiums paid for a ‘shopping basket’ of key insurances important to households and businesses.

Why are premiums falling?

BIBA says the main catalyst behind the falling cost of motor insurance is competition between providers. There have also been a number of initiatives over the past few years to tackle issues that have fuelled higher car cover costs.

The Association of British Insurers (ABI) estimated motor insurance fraud was adding £50 to the average insurance bill in 2013, so to alleviate the problem the DVLA and Motor Insurance Bureau (MIB) launched the MyLicence initiative in 2014 – a searchable database of driver information for insurers. It’s estimated to save motorists £15 a year.

The continuing crackdown on uninsured drivers, which has led to a 40% reduction since its peak, has also played a part in driving down premiums for motorists. Meanwhile younger drivers have benefitted from telematics technology - a black box device fitted to cars that monitor driving behaviour - which rewards safe and responsible driving with cheaper premiums.

BIBA also singled out the Laspo (Legal Aid, Sentencing and Punishment of Offenders) reforms from the Ministry of Justice, which were introduced to cut fraudulent and exaggerated personal injury claims. These included a ban on personal injury referral fees in 2013 to deter ‘ambulance chasing’ claims management firms encouraging a 'compensation culture'.

However, the AA recently warned the crackdown wasn't having the desired effect, with personal injury claims actually rising since the reforms. Janet Connor, managing director of AA Insurance, said opportunities were being missed to stem the tide like banning whiplash claims for low speed impacts and introducing independent medical panels to assess claimants.

So while competition was keeping prices low, motorists could see premiums rise by as much as 10% over the next year to cope with the cost.

When it comes to home insurance, BIBA says the fall in premium costs appears to be down to the mild winter last year resulting in a lower number of burst pipe claims.

[Related story: AA says "unsustainable" car insurance could rise by up to 10%]

How insurance costs have changed in ‘real’ terms

The BIBA-Acturis Insurance Price Index, although only launched last year, can track premiums back to 2010.

So it can also show the change in premium costs in ‘real’ terms by taking inflation into account.

Over 2010 to 2014 home and motor insurance premiums rose by 2.5%. However BIBA pointed out this is well belowthe Consumer Price Index (CPI) measurement of inflation, which is 12-14% over the same period.

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