With inflation and rising vehicle repair costs, motorists in the UK are feeling the pinch when it comes to insuring their vehicles.
According to the Association of British Insurers (ABI), the average premium for car insurance in the three months leading up to June reached a record high of £511. This represents a 21% increase compared to the same period last year. Some drivers have even reported receiving quotes that are triple the amount they paid the previous year.
The Factors Behind Rising Premiums
The surge in car insurance costs can be attributed to several factors. One key driver is the sustained cost pressures faced by the insurance industry. In the first quarter of this year, insurers paid out a staggering £2.4 billion for motor insurance claims, a 14% increase from the previous year. This includes claims for theft, vehicle repairs, and personal injury.
Vehicle repair costs have also seen a significant spike, rising by 33% over the past year to reach £1.5 billion. This increase can be attributed to rising costs, including energy inflation and higher prices for replacement parts. In fact, one insurer reported a 40% increase in labour rates and a 21% increase in the cost of replacement parts between June 2022 and January this year.
These rising costs are putting pressure on insurance companies to pass on the expense to consumers, resulting in higher premiums for both new policies and renewals. On average, renewing customers experienced an increase of £36, bringing their average premium to £471. Meanwhile, new policyholders faced an average increase of £21, bringing their average premium to £566.
Real Stories: The Impact on Motorists
The soaring cost of car insurance has left many motorists shocked and frustrated. Diane Cedra, a 66-year-old driver from Solihull in the West Midlands, saw her insurance premium nearly triple when it came time to renew. She was initially quoted £620, compared to the £211.99 she paid the previous year. After negotiating and receiving a customer loyalty bonus, she managed to reduce her premium to £411. Cedra expressed her dissatisfaction, pointing out that she shouldn’t have to pay for the mistakes of other drivers who may not be as careful on the roads.
Another driver, Karl Kemp from Burnley, was perplexed when his insurance premium for his Range Rover Evoque jumped from £925.90 to £1,653.66 despite no changes in his circumstances. Kemp, who had gained an additional year of no claims, expected his premium to decrease. After shopping around, he found a more reasonable quote from First Choice, which was comparable to his premium from the previous year. Kemp emphasised that an extra £700 in insurance costs would have made it impossible for him to afford a car.
Consumer Concerns and Regulatory Oversight
Consumer group Which? has raised concerns about the record-high premiums and the impact on consumers who are already struggling with rising costs in various areas. They question whether insurers passing on increased costs is justified, particularly in the current economic climate. The introduction of the Financial Conduct Authority’s new Consumer Duty aims to ensure that insurers offer fair value in the products they sell.
A report published in June highlighted that 2022 was the worst-performing year for the UK motor insurance market in a decade. Motor insurers paid out £1.10 in claims and costs for every £1 they received in premiums. This indicates significant financial strain on the industry and underscores the need for insurers to address the rising costs.