Why car insurance is suddenly so expensive
Britain is set for another year of skyrocketing car insurance premiums after the cost of insuring a vehicle rose to record levels last year – and drivers are demanding answers.
Many motorists have found rises in their insurance mystifying. This newspaper has heard from readers who say their insurers have suddenly quoted prices hundreds of pounds above what they have paid for the same car for years.
This is despite the fact that new rules have been introduced to supposedly ensure fairer prices for insurance customers.
Here, Telegraph Money explains what’s really going on.
How much has car insurance increased?
According to the Association for British Insurers (ABI), a trade body, the average premium for comprehensive motor insurance rose in price by 25pc over the last year. Insurance is now the most expensive it has been since the ABI started collecting data in 2012.
The Financial Conduct Authority (FCA) wrote to MPs in January warning that the cost of car insurance will continue to rise in 2024. The regulator blamed higher energy prices and increased costs to repair cars.
Prices quoted to most drivers who are renewing or changing their insurance are commonly between £500 and £749, according to market research firm Consumer Intelligence. The ABI, which tracks prices that are actually paid, says that prices on average last year were £543, up by a quarter between 2022 and 2023.
Why has car insurance become so expensive?
Some readers have questioned the impact of the FCA’s loyalty penalty ban, which came into force in January 2022, because insurance costs seem to have risen sharply since.
The introduction of Consumer Duty last July should have strengthened the industry’s requirement to give customers policies that offer good value for money, but prices have continued to rise.
Loopholes in legislation could be an issue, according to consumer rights group Which?. In December, it warned that car insurers could still be charging existing customers more than new ones.
Best drivers caught out
You might think years of careful driving with zero claims will protect you against rising premium costs, but this appears to no longer be the case.
Dame Harriett Baldwin MP said she experienced her own “horror story” after receiving a shock quote five times her usual premium cost last year, despite having made no claims on her vehicle.
She said: “In rural areas like West Worcestershire most people rely on their cars. We’ve all heard the horror stories of premiums skyrocketing across the insurance sector.
“I had my own experience when I was deeply shocked last year to find my car insurance premium had leapt from £500 to £900. This year I was quoted £3,000 to renew and, no, I haven’t had any claims.
“It’s clear that this is a problem affecting thousands if not millions of our constituents. What we need to understand is what can be done to bring down premiums,” she added.
Insurers rely on complex algorithms to determine the risk of individual drivers. These depend on hundreds of factors that are often kept secret.
Even something as simple as whether the driveway where you park your car has a gate, or if you have a driveway at all, can play a role in determining the cost of cover.
Hi-tech cars more expensive to fix
The type of car you drive will also play a much bigger role than it did historically in determining costs. This is largely thanks to electric vehicles (EVs), which are now so expensive to cover they are at risk of becoming uninsurable.
Electric car parts can be more complicated than those in petrol cars. They often cost more to replace, more to manufacture and may use microchip technology that must be imported from the East Asia, where there has long been a shortage.
An ABI spokesman said last year’s record surge in premium prices was “largely driven by above inflation increases in the cost of repairs, thefts and replacement cars, which contributed to insurers paying out a record £9.9bn in claims for the same period.”
A spokesman for Direct Line, one of the UK’s biggest insurers, said: “Pricing across the industry has been rising for some time and is mainly due to increased claims inflation and higher repair and labour costs.
“We always encourage customers to get a range of quotes before renewing their insurance, to ensure that they get the right cover to meet their needs if the worst were to happen and they had to claim.”
While motorists with larger budgets may race to buy the most hi-tech new motor, they should be wary of some of the newer bells and whistles. Keyless entry has driven a spate of thefts of Hyundai’s Ioniq 5 recently, as well as other vehicles.
Amanda Stretton, a racing driver and television presenter, said: “The real problem is that it has just caused these huge backlogs in getting parts because we don’t manufacture anything here so everything has to come from abroad, mostly through Europe.
“Now you’re looking at headlights that could be a couple of thousands pounds. Cars are more complicated and therefore more expensive. The reality is it has made a difference whether you like it or not.”
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Older drivers paying more
Certain demographics have always had to pay more for insurance. Young people aged between 20 and 25, and older drivers aged over 80 have conventionally been seen by insurers as especially risky. But there are signs older people are now paying more from an earlier age.
Insurers have targeted over 65s in particular with rising quotes, which went up by 43pc between the start of 2023 and January this year, according to price comparison site Quotezone. The figures show the average price of cover for the age group now stands at just under £479, up from £334 at the start of last year.
Those aged 75 and older face paying even more, with quotes for the cheapest deals for car insurance on average at £752 – just over £100 less than drivers aged between 20 and 25 who are conventionally seen as the biggest risks, according to market research firm Nimblefins.
The RAC Foundation, the charitable arm of the RAC, has said that the UK’s rapidly ageing population could be to blame. There are over two million more drivers aged 70 or over on the roads than there were a decade ago, according to RAC Foundation figures. It presents a growing risk that insurers could have to manage by handing pensioners higher premiums.
How to find the best car insurance prices
Despite the rules banning loyalty penalties, it still pays to shop around for the cheapest deals – so don’t just let your premium auto-renew.
Using multiple comparison sites can help give you an idea of available offers – although you’ll need to go directly to providers such as Direct Line, who don’t appear on them.
If you do want to stick with the same insurer, it can be worth giving them a call to see if you can negotiate on the price – our guide reveals everything you need to say to haggle effectively.
Tinkering with your job title, the amount of excess you’ll pay and paying your premium in one lump sum are some other ways to cut your car insurance costs.
