The average price of car insurance shot up by 21% in the last year, according to an analysis of 28 million policies by the Association of British Insurers (ABI).
Drivers paid an average of £511 in the second quarter of 2023, compared to £423 in 2022. It's the highest premiums have cost since ABI's records began in 2012 and a 7% jump in the first three months of this year.
The figures show what customers paid rather than just quoted, so the ABI claims it gives the most accurate picture of what UK drivers are actually spending on cover.
Here, Which? takes a closer look at what's behind these record rises and if there is anything you can do to reduce your premium.
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Why is the cost of car insurance going up?
'Sustained cost pressures' on insurers fuelled by high inflation, are the main reason why providers are hiking the price of car cover, the ABI claims.
In the first quarter of 2023, there was a 14% year-on-year increase in the amount paid out in all car insurance claims, totalling £2.4bn.
That includes claims for theft and personal injury, with the cost to insurers of vehicle repairs rocketing by a third over the year to reach £1.5 billion. That's the highest figure since the ABI started collecting this data back in 2013.
The ABI also blames increases in energy charges and more expensive repairs. The costs of replacement parts for many popular cars have increased by as much as a fifth over the past year. The association says one insurer saw a 40% rise in labour rates between June 2022 and January this year.
- Find out more:best and worst car insurance companies
'Worst possible time for consumers'
With inflation still soaring at 7.9% - way above the Bank of England's target of 2% - these price hikes will likely add further fuel to the fire for drivers already feeling the squeeze.
Jenny Ross, editor of Which? Money, says car insurance premiums reaching record highs comes at 'the worst possible time for consumers'. She adds: 'Motorists may be wondering whether insurers passing on increased costs is justified at this time.
'The Financial Conduct Authority’s new consumer duty will mean that insurers need to be able to demonstrate the products they are selling offer fair value. If they can’t justify them, they should face action from the regulator.'
- Find out more: the new consumer duty explained
How has the loyalty penalty ban impacted insurance?
The Financial Conduct Authority (FCA) banned the so-called 'loyalty penalty' in January 2022 to stop insurers from offering better deals to new customers compared to those offered to existing customers that renew.
However, the new rules do not set or cap the level of premium charged.
These changes mean there's little incentive for providers to compete on price and as a result, customers may be reluctant to switch when their policy ends. GlobalData’s 2022 UK Insurance Consumer Survey found that only 28.8% of motor insurance customers switched insurers at renewal (down from 30.7% in 2021). This was despite a further 46.6% shopping around but staying with the same provider.
The ABI's tracker found that in the second quarter of 2023, the average price paid by motorists renewing their cover rose by £36 to £471, and the average premium for a new policy was up £21 to £566, compared to the first three months of this year. The ABI claims this reflects the different risk profiles of new and renewing customers. For example, a new customer may be more likely to be a younger, less experienced driver.
- Find out more: how to find cheap car insurance
Tips to cut car insurance costs
The price of premiums may be rising, but there are some simple ways you can reduce the cost of your cover in 2023.
The first should be a no-brainer for all savvy consumers - shop around. Even with less competitive prices out there, you should always see what other deals are available before you commit to renewing or buying a new policy.
Price comparison sites such as Compare the Market, Confused.com, GoCompare and MoneySuperMarket allow you to view multiple car insurance quotes at a glance. Just remember, not all insurers are on price comparison websites: Which? Recommended Providers Direct Line and NFU Mutual are examples of this.
Renewing early and opting for an annual policy instead of monthly could also save you hundreds of pounds. Keeping your mileage in check keeps the cost of cover down and, surprisingly, your occupation can also impact the price. One trick to get around this price hike – without lying – is to try and tweak your job title. For example, instead of 'barber', try saying 'hairdresser' or 'hair stylist'.
Finally, if you don't want to switch to another insurer, you might be able to get the price down by haggling. We surveyed 14,408 Which? members who renewed or switched car or home insurers between May 2021 and June 2022. Of the members who discussed their premium with their insurer, 48% were able to get their price reduced.
- Find out more:our car insurance haggling script
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As an expert in insurance and finance, I can confidently analyze the information provided in the article about the significant increase in the average price of car insurance in the UK. The data from the Association of British Insurers (ABI) indicates a substantial 21% rise in car insurance premiums over the last year, reaching the highest level since records began in 2012.
The evidence presented by the ABI includes an analysis of 28 million policies, providing a comprehensive understanding of the current state of car insurance in the UK. It's worth noting that the figures represent actual payments made by customers rather than quoted prices, ensuring a more accurate depiction of the real expenses incurred by drivers.
The primary reasons behind the surge in car insurance costs are attributed to what the ABI calls 'sustained cost pressures.' These pressures are fueled by factors such as high inflation, a 14% year-on-year increase in total payouts for all car insurance claims in the first quarter of 2023 (amounting to £2.4 billion), and a significant rise in the cost of vehicle repairs, reaching £1.5 billion. The ABI points to theft and personal injury claims as contributors to this increase.
Moreover, the article highlights additional factors influencing the rise in insurance premiums, including increases in energy charges and more expensive repairs. The cost of replacement parts for popular cars has risen by as much as a fifth in the past year, and one insurer reported a substantial 40% rise in labor rates between June 2022 and January 2023.
In the context of the broader economic landscape, the article discusses the impact of inflation, which is currently at 7.9%, well above the Bank of England's target of 2%. This inflationary environment further exacerbates the financial burden on drivers.
The loyalty penalty ban implemented by the Financial Conduct Authority (FCA) in January 2022 is also addressed. While the ban aims to prevent insurers from offering better deals to new customers than existing ones, it does not set or cap the premium levels. The article suggests that this lack of pricing regulation may reduce the incentive for providers to compete on price.
Finally, the article provides practical tips for consumers to mitigate the impact of rising car insurance costs. These include shopping around for the best deals, renewing policies early, opting for annual policies instead of monthly, keeping mileage in check, and even tweaking one's job title to potentially influence premiums. The piece also notes that haggling with insurers can be effective, with 48% of surveyed members successfully negotiating lower premiums.
In conclusion, the information presented in the article provides a comprehensive overview of the factors contributing to the surge in car insurance prices, offering insights into the economic, regulatory, and industry-specific dynamics influencing the market.
