During the period from July to September last year, private fully comprehensive car insurance premiums surged by 29% to £561, marking the highest premium on record according to the Association of British Insurers (ABI). However, industry analyst Consumer Intelligence reported an even faster rise of 61% in premiums between August 2022 and August 2023. Additionally, the Financial Ombudsman Service noted a five-year high in motor insurance complaints between April and June last year.
The inflation rate has started to decrease, but this has not yet been reflected in the cost of car insurance, posing challenges for both consumers and dealers. Some models have become virtually uninsurable due to the escalating costs.
“Car insurance premiums have been consistently rising. Our price index for car insurance revealed a 35% increase between Q2 2022 and Q4 2023, with the average price reaching £465,” said Tom Banks, Car Spokesperson for Go.Compare. While the average price has dropped to £447 in 2024, many individuals are still paying higher premiums compared to previous years. The cost surge is largely attributed to the rising prices of replacements and repairs, as well as inflation.
James Finucane, Senior Economist at Swiss Re Institute, attributes the price hikes to higher costs for insurers themselves. He explains, “The rise in car insurance prices is a delayed response to the inflation surge affecting car prices and repair costs. Inflation has filtered through to insurance claims costs, resulting in a significant increase in car insurers’ underwriting losses. Current price hikes reflect insurers’ efforts to restore profitability and return to normal profit levels.”
Louise Thomas, motor insurance expert at Confused.com, agrees that insurers are facing increased costs, pointing out rising claims expenses due to inflation affecting parts and labor costs. The advancement of technology in cars is also driving up repair and replacement expenses. The higher number of cars on the road compared to the pandemic period has increased the risk of accidents and claims, leading insurers to pay out more frequently.
Given these factors, the question remains whether the surge in prices is temporary or signals a long-term trend. Banks from Go.Compare believes that while a decrease in prices is unlikely, they may be starting to stabilize. He emphasizes the importance of consumers shopping around at renewal to find the best premiums.
Finucane forecasts a stabilization in prices in the insurance sector as used car prices decline and repair costs decelerate. This shift is expected to slow the increase in claims costs, ultimately leading to lower price gains through market competition.
Despite signs of stabilization, some argue that premiums remain excessively high, particularly for younger drivers. Rocio Concha, Director of Policy and Advocacy at Which?, notes the significant price increase in premiums from 2022 to 2023, highlighting the financial burden on many drivers.
Price-controlled
While price rises affect all customers, they disproportionately impact drivers under 25 years old. Insurers consider various factors in calculating insurance prices, including policy type, age, location, driving history, occupation, and vehicle make. Insurers now leverage big data for pricing decisions to assess drivers’ risk profiles accurately.
Thomas emphasizes the role consumers can play in managing insurance costs by shopping around and considering factors like annual payment, voluntary excess, security enhancements, and accurate mileage reporting. Protecting a no-claims bonus is a popular strategy, but this can increase end-of-finance contract fees for minor damages, presenting consumers with a dilemma.
Dealer challenges also arise from the insurance price surge, with Mike Edwards from AutoProtect Group highlighting the importance of offering SMART insurance to maximize part-exchange value and protect no-claims bonuses. As inflation and costs stabilize, market competition is expected to drive prices down.
Beyond inflation
Industry experts suggest that factors beyond inflation, such as rising repair costs and evolving car technologies, contribute significantly to the insurance price hikes. The transition to electric vehicles and advanced safety features impacts risk profiles and repair expenses, necessitating adjustments in insurance pricing and coverage.
Concha advocates for regulatory intervention to address disparities between monthly and annual insurance payments, calling for fair value requirements to prevent insurers from exploiting customers. The evolving automotive landscape underscores the need for comprehensive insurance coverage that aligns with changing vehicle models and technologies.
Car insurance premiums are expected to stabilize as the industry adapts to new challenges and market dynamics. While the road ahead may be challenging, proactive measures by consumers and industry stakeholders can help navigate the evolving landscape of car insurance.
