Average car insurance bill climbs to almost £1,000

The average annual car insurance bill has hit almost £1,000 as MPs warned that premiums risked becoming so expensive that drivers are put off making claims.

Insurance bosses spoke at a Treasury select committee on Wednesday to explain the surging cost of car insurance, for which quotes have risen by 43 per cent in the past 12 months, according to research by comparison site Confused.com.

The data showed that the average cost of taking out a new car insurance policy in the UK is now £941, having dropped marginally from a high of £995 at the end of last year.

Dame Angela Eagle told the committee “my constituents and many people who write to the committee feel that insurance is becoming more of a rip-off.

“Because the price is going up, it’s harder to make a claim; people, when they do make a claim, often have to wait a very long time or aren’t dealt with very fairly.

“And that’s particularly the case for insurance that’s compulsory, such as driving insurance,” she added.

Senior MPs last night warned that spiralling costs put drivers off making smaller claims, to avoid having to pay an excess on top of increasingly unaffordable cover. Drivers also risk losing their “no-claims” bonus if they make a claim, leading to a more expensive premium.

Anne Marie Morris, a Conservative committee member, said: “Clearly one is very concerned as to the impact of any change on the willingness of individuals to claim under the policies. It would be disastrous if they felt they couldn’t.”

She added there were “plenty of individuals” who might opt not to claim for damage on their vehicles as a result of higher prices “when you are talking about a very small claim”.

Dame Harriett Baldwin, the Conservative chairman of the Treasury select committee, said: “It is definitely important that people claim on their insurance when they have sustained the kind of losses that insurance is there for, of course they must claim.”

Siobhain McDonagh, a Labour committee member, said: “Consumers do have a lot to be worried about. It is a very ferocious market with older customers being excluded by having to pay online. These insurances are not optional extras, they are legal requirements.”

In evidence submitted to MPs, insurance firms blamed added supply chain costs brought on by the pandemic and war in Ukraine, as well as price inflation on parts and labour for the higher costs.

Depending on the severity of an accident, drivers can expect car insurance to increase by about 20 to 50 per cent after making a claim, according to comparison website Compare the Market.

An accident where it was not the insurance payer’s fault is likely to put up premiums by less than £10 each month, according to motoring advice site car.co.uk.

Data from Confused.com shows that drivers aged between 22 and 35 were particularly caught out by the rising cost of premiums and face paying £1,930 on average, up by £667 since 2019.

Those aged between 55 and 65 were on average quoted over £100 more than their premiums of six years ago.

On Tuesday this newspaper reported that elderly drivers aged over 65 were paying more for their insurance thanks to Britain’s rapidly aging population, with over two million more people aged 70 or over on the roads than a decade ago.

Recent regulatory interventions by the Government and the Financial Conduct Authority (FCA) in the industry were said to have had a minimal impact on prices.

Colm Holmes, chief executive officer of Allianz, denied that the Government’s Consumer Duty legislation had been responsible for driving prices up. He said: “For us it’s very, very minimal. It’s not relevant in terms of the cost of insurance.”

The rules require companies to implement better protections around customers and offer products and services that are “fair value”, according to the FCA.

Charlotte Clark, of the Association of British Insurers (ABI), the industry body for insurers, said that the banning of so-called loyalty penalties in 2022, which ended the practice of charging new customers less than existing ones, had not led to price surges overall.

She said: “These are competitive markets. If you are decreasing the cost for somebody it is going to be increased somewhere else. You would expect that to be level so we wouldn’t have expected there to be increases across the board in terms of average, but that some people would have benefited and some people would have lost out.”

However, the FCA said that forecasts made by insurers for inflation had left them unprepared for its impacts. Matt Brewis, of the FCA, said: “The insurance sector has not done a particularly good job of forecasting inflation and the impact that it will have on their supply chains and protecting those parts of their business.”

People are being forced to turn to food banks by the higher cost of insurance, consumer group Citizens’ Advice also warned.

David Mendes de Costa, who represented the group at the meeting, said: “The people who are coming to us for help are having to make impossible choices between whether to pay for their car insurance. We’ve had people come to us to make food bank referrals because of the rising cost of insurance.”

The ABI was approached for comment.