In 2023, car insurance premiums in the UK are expected to rise by a staggering 14%, with no stabilization expected until 2025, according to a recent report by consultancy firm Oxbow Partners. The primary driver behind this upward trend is inflation, which has significantly impacted the cost of vehicle repairs. In this blog, we will delve into the reasons behind the price hikes, the factors that contribute to car insurance pricing, and the expected implications of expensive car insurance for drivers.
Inflation is the key factor driving the increase in car insurance prices. The surge in energy prices has cascading effects on vehicle repairs, as it takes a considerable amount of energy to extract and process materials for replacement car parts and operate repair garages. Consequently, garages and repair shops have raised their service charges and the cost of parts they sell, causing an overall inflationary pressure on car insurance premiums.
Insurers attribute the current price increases to catch up with inflation. Standard car insurance policies are typically agreed and fixed for a year in advance, meaning that the policies coming to an end now did not account for the extraordinary inflation levels seen in 2022 and 2023. Insurance companies have incurred higher costs due to unexpected accident payouts over the last year, leading to the need for a 14% increase in premiums to recoup these losses.
While the Bank of England expects inflation to fall to 5% by the end of the year, it will still take until the end of 2024 to reach the target level of 2%. This means that insurance and other goods and services will continue to experience significant price increases until 2025.
The Financial Conduct Authority (FCA), the insurance regulator, expresses concerns about how unaffordable car insurance might impact drivers. The cost of living crisis has already resulted in financial hardships for many, and if car insurance becomes unaffordable, some drivers may resort to drastic actions, such as driving without insurance or opting for cheaper, less protective coverages. To address this, the FCA has been investigating motor insurance pricing and implementing new rules regarding price renewals.
Car insurance premiums are calculated based on the likelihood of a driver making a claim and the potential size of the claim. Several factors contribute to this assessment, including the driver's profession, address, annual mileage, willingness to pay voluntary excess, the make and model of the vehicle, modifications made to the car, parking location, age, medical conditions affecting driving ability, driving and accident history, presence of named drivers on the policy, and the type of coverage chosen.
According to the Association of British Insurers (ABI), the average cost of insuring a vehicle was £478 in the first three months of 2023. However, this figure can vary significantly depending on factors such as the driver's experience, the vehicle's make and model, and the level of coverage chosen. New drivers, on average, may expect to pay around £1,400 a year for car insurance.
Q6: How do I know how much my car insurance will be?
Comparison websites are a convenient way to obtain competitive quotes from multiple insurers. Platforms like GoCompare, Compare the Market, and MoneySuperMarket will ask various questions to determine a suitable quote based on your details. Additionally, insurance group numbers can provide a rough idea of a car's insurance cost, ranging from Group 1 (least risky and cheapest) to Group 50 (most expensive). You can check the insurance group of any GB registered car using Total Car Check's free initial check on their website or app.
The inflation-driven rise in car insurance premiums has significant implications for UK drivers. Understanding the factors that contribute to these increases can help individuals make informed decisions when selecting insurance coverage. It is crucial to shop around using comparison websites and take advantage of tools like Total Car Check to determine insurance groups when purchasing a car. By staying informed and proactive, drivers can navigate the challenges of rising car insurance costs more effectively.