The average price of car insurance in the three months to June surged to a record high, owing to the hefty rise in vehicle repair costs, according to the industry trade body.
Drivers paid an average of £511 in Q2 2023 for private comprehensive insurance, which is 7% higher than the previous three months.
However, over the year, this figure has shot up 21% and is at its highest level since the Association of British Insurers (ABI) started collating the data back in 2012.
Its analysis of 28 million motor insurance policies over the year – seven million in Q2 – and the price drivers actually paid for cover revealed that renewal costs rose by £36 to £471. Meanwhile, the average premium for a new policy was up £21 to £566.
The ABI said this distinction reflects the different risk profile of new and renewing drivers, with new customers potentially more likely to be younger and less experienced.
However, the runaway prices are down to insurers “battling sustained cost pressures”, including energy inflation and the 33% rise in vehicle repair costs in the year to £1.5bn. Again, this is the highest figure since it started collating this data in 2013.
One insurer quoted a 40% rise in labour rates between June 2022 and January this year. The cost of replacement parts for many popular cars have increased between 12-21% over the past year.
Previous analysis by consultants EY highlighted that for every £1 motor insurers received in premiums, they paid out £1.10 in claims and operating costs.
Indeed, the ABI reported that insurers paid out a total of £2.4bn in all motor insurance claims, that is theft, vehicle repairs, and personal injury. This was up 14% on Q1 2022.
‘Challenging to provide competitive insurance policies’
Mervyn Skeet, the ABI’s director of general insurance policy, said: “These continue to be tough times for many motorists and motor insurers alike. With many families facing higher cost-of-living bills, no one wants to see the cost of their motor insurance rise. Insurers remain determined to ensure that motor insurance remains as competitively priced as possible, but this has become increasingly challenging, given the continued rising costs that they are facing.
“We would urge anyone concerned about being able to afford their insurance to speak to their motor insurer to see what options might be available. And despite cost pressures, it can still pay to shop around to get the policy that best meets your needs at the most competitive price.”
Regulator on car insurance premiums
The Financial Conduct Authority (FCA) brought in rules on the pricing of motor and home insurance on 1 January 2022.
This ensures that the price paid by renewing customers is no greater than the price charged to an equivalent new customer for the equivalent policy, bought through the same distribution channel, such as insurer, broker, or price comparison website.
However, the rules do not set or cap the level of premium paid by new or existing customers. The ABI said the price of cover will continue to reflect a range of factors, including the cost of settling claims.
Jenny Ross, editor of Which? Money, added: “The FCA’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.”
Based in New York, Stephen Freeman is a Senior Editor at Trending Insurance News. Previously he has worked for Forbes and The Huffington Post. Steven is a graduate of Risk Management at the University of New York.