If you’re in the market to renew your insurance, you may be facing increased expenses compared to previous years. But why is this happening, especially if you haven’t made any claims on your insurance policy? Let’s delve into the factors contributing to the rise in car insurance premiums in 2023 and 2024.
Are insurance premiums on the rise?
According to the ABI, insurance premiums have indeed been increasing year on year, with a steady incline over the past few quarters.
ABI’s research indicates that in Q4 2022, the average price paid upon renewal rose by 8%, while the average price for a new policy in the fourth quarter of 2022 increased by 7% from the previous quarter. Further data suggests that this trend has continued into 2023, with prices up by 21% in Q2 2023 compared to Q2 2022.
So, what is driving this trend? To understand, it’s essential to grasp how insurance premiums are calculated.
How are insurance premiums determined?
In essence, insurers calculate premiums by assessing the risk involved and ensuring that the premiums set for individuals cover potential claims.
Reviewing your insurance policy documents, you’ll likely notice coverage for various services that need to be accounted for. Your policy may include:
- Unlimited third party personal injury cover
- Up to £20m of third party property damage
- Cover for own vehicle accidental damage
- Cover for vehicle theft and fire
- …and more
What factors are driving the increase in insurance premiums?
The recent increase in premiums can be attributed to high inflation rates. Despite the need for insurance providers to cover all costs associated with claims, inflation has made these expenses more costly.
Repairing and sourcing parts for vehicles, such as replacing batteries or fixing electrical issues, have become more expensive. Additionally, costs like legal fees and renting replacement vehicles during repairs have also risen due to inflation.
Consequently, insurers have raised premiums to cover the expenses incurred from insured losses.
Why have my insurance costs risen above inflation?
Unfortunately, many costs linked to claim payouts have escalated beyond inflation rates.
ABI’s study shows that average vehicle repair expenses surged by 46% in Q2 2023 compared to Q2 2022, with costs for providing replacement vehicles during repairs jumping by 52% in the same period. These examples illustrate costs rising well above inflation rates, with the highest inflation rate hitting 11.1% in October 2022.
Despite car insurance premiums covering claim costs, ABI’s recent findings reveal that claim payouts have escalated at a faster pace – 29% year on year in Q2 2023, compared to a 21% year-on-year average insurance premium increase for the same period.
Can we anticipate a decline in insurance premiums as inflation rates decrease?
Not necessarily. The outlined price hikes are unlikely to reverse. While the inflation rate has diminished, it doesn’t mean prices for goods and services are decreasing; rather, they are increasing at a slower pace.
How do current premiums compare to pre-coronavirus levels?
Despite inflation rising each year since 2019, it might surprise you to learn that the average premium was lower in Q1 2023 compared to Q4 2019. In Q4 2019, the average premium stood at £483, whereas in Q1 2023, it was £478.
What other factors are impacting insurance premiums?
Several other factors are contributing to the surge in insurance premiums.
In recent years, supply chain issues have resulted in delays in sourcing certain car parts. These delays have increased costs for insurers, as longer waits for parts necessitate longer provision of courtesy cars for customers, driving up expenses.
Furthermore, advancements in technology have hiked repair prices, especially for newer vehicles with sophisticated features like cameras, sensors, and screens that are pricier to repair or replace compared to older vehicle components.
FAQ
Are insurance premiums always this high for new drivers?
Several factors impact risk assessment for new drivers, particularly those in their late teens or early twenties. High insurance premiums for new drivers are often due to the lack of a no claims bonus (NCB), which serves as evidence of low risk to insurers.
Furthermore, as of January 1, 2022, the Financial Conduct Authority (FCA) restricted insurers from offering discounted policies to new drivers, as the additional costs were often passed on to long-term loyal customers. This policy change has made cover for new drivers more expensive compared to previous years.
Why are Land Rovers costly to insure?
In addition to the aforementioned factors, the increase in Land Rover insurance prices can be attributed to a rise in thefts of high-end vehicles like Land Rovers, especially in urban areas. To offset the heightened risk, insurance companies have raised premiums for insuring these vehicles, with some even opting not to cover Land Rovers at all.
Why are electric cars expensive to insure?
A study by Thatcham Research indicates that claims for battery electric vehicles (BEVs) cost around 25.5% more than their internal combustion engine (ICE) counterparts and take approximately 14% longer to repair. Factors contributing to higher electric car insurance costs include a higher claim rate for EVs than ICE vehicles, often 25% higher for EVs.
The increased costs can be attributed to limited repairability of EVs, insufficient training for EV repairs in mechanics, higher component expenses, and escalated fire risks post-crash.
How can I lower my insurance premiums?
While it’s essential to ensure your policy provides adequate coverage, there are ways to save on insurance costs. Our blog offers over 20 simple tips to reduce car insurance premiums effectively.
Conclusion
If you’re in need of car insurance, consider obtaining a quote from a specialized insurance broker like us. With access to quotes from 30 insurers, we ensure you get tailored coverage matching your specific requirements, helping you avoid unnecessary expenses and only pay for the necessary protection.
As specialists in the field, we cater to various vehicle types, from standard cars to classics, imports, and modified vehicles. Contact us at 0800 369 8590 for a personalized quote or schedule a callback for assistance.
