For drivers across the UK, renewing their car insurance is usually a forgettable piece of annual admin. Today, it has become a confounding, painful exercise after premiums soared to an all-time high.

Many drivers have seen their premiums double, and in some cases the squeeze is more extreme — young drivers facing premiums in the thousands of pounds, and some Range Rover drivers as much as tens of thousands of pounds after a spate of thefts. Consumer groups have declared an affordability crisis and the government has promised to intervene.

Barry North, who lives in Surrey, drives a Mercedes-Benz C-Class Estate, travelling less than 5,000 miles a year. It cost about £660 to insure two years ago; that jumped to just over £1,000 the following year and this year has reached £1,780, despite no claims over all that time. 

North told the Financial Times he “struggled to see how an almost tripling of premiums in two years could be justified by underlying costs”. At almost 88 years old, he accepts that age could be a factor, given that older drivers are judged as riskier, but he questions whether the recent premium increase of two-thirds was justified by an age increase of just over 1 per cent.

Fewer companies are prepared to quote, and those that remain can ask what they want

Another reader responding to our recent FT Money callout, who asked not to be named, lives in central London, drives an Audi Q5 and is close to turning 75.

The reader went from paying £1,700 for their car insurance to receiving a quote — the “best quote one broker could find” — at an “insane” £4,500, before finding another provider charging £3,250. The reader said they found it “so aggravating that I have secure off-street parking, and still they charge these exorbitant sums”.

“Fewer companies are prepared to quote, and those that remain can ask what they want,” they added.

Another reader lives in north-west London and, like their partner, drives a Hyundai hybrid. Both saw their premiums double year-on-year to about £1,000. 

“[It] was a huge shock, especially as neither of us had claimed on our insurances in the year.” They had had two no-fault incidents, both settled in full by the other party, while their partner had none.

What exactly is driving this dramatic surge in prices, and will those forces shift, or be shifted, into reverse?

The latest data from the Association of British Insurers shows that the annual cost of an average comprehensive motor insurance policy in the UK hit a record £635 in the first quarter, after a dramatic rebound from a slump in prices during the coronavirus crisis.

Premiums vary greatly, of course, according to cohort, reflecting insurers’ experience of risk. City drivers pay much more than the average, as do the young. A new 17-year-old driver is being quoted an average of just over £3,000 for an annual policy, according to data published last month from comparison website Compare The Market, up £1,000 from last year.

The scale of the rises has concerned consumer advocates, industry groups and politicians. 

“We’ve seen for a lot of people, 50-100 per cent price increases, when [premiums] were already pushing at the limits of affordability,” says James Daley, managing director at consumer group Fairer Finance.

“In some edge cases, it has been even more than that,” he says, where there is a paucity of parts for a certain vehicle, for example. The industry is in “crisis mode” and policymakers need to “look at everything” to address the problem.

The sector, only two years on from a significant pricing reform to stamp out so-called loyalty penalties for renewing customers, is now steeling itself for further intervention. The government promised in its election manifesto to tackle the “soaring cost of car insurance”.

The price rises are already having societal effects, industry experts say: putting lower-income households, who already tend to pay out more for their insurance, under pressure to afford cars they may rely on to get to work; and making it harder for the youngest drivers to get insured at all. 

There is also a worry that the surge in insurance costs encourages people to take on lower-cost policies that leave them “underinsured” — not providing the cover they would need in the event of an accident, or signed up to an excess on their policy they could struggle to pay.

And more serious still, the rise in premiums, particularly for younger drivers, could also result in more people driving uninsured, the industry-funded Motor Insurers’ Bureau, which compensates those hit by uninsured drivers, has warned. 

“We understand these are tough times, but we also want to encourage everyone to look for legal ways to reduce the cost of their insurance,” says its law enforcement liaison officer Simon French.

On one level, an explanation of what is driving the rise in insurance prices is simple. Motor insurers are repricing policies significantly in order to catch up with spiralling inflation in their claims costs, as things such as secondhand cars, car parts and labour have become more expensive. Similar pressures have pushed up home insurance prices, too.

But the underwriting pain has been greatest on motor cover. According to consultancy EY, UK motor insurers paid out £1.13 in claims and expenses last year for every £1 they took in premiums. This came after a similarly bad year in 2022, which led to profit warnings at some firms and knocked share prices. Insurance executives say they feel sympathy for the pressures on their customers, but it is balanced against their obligation to run sustainable businesses.

Below the headline numbers, there are many forces affecting the severity of claims, according to industry experts, who argue that the surge in premiums in recent years is really a combination of those effects.

£3,000Average price quoted for an annual policy for a new 17-year-old driver — up £1,000 from last year

One is the rising cost of repairs as cars become more sophisticated. Here, there are pinch points. Electric vehicles are proving difficult to underwrite, due to the cost of replacement or repair of their components.

Carmakers “are not always making it clear whether batteries can be repaired or not,” says Mike Powell, motor insurance expert at Defaqto, which rates financial products, citing the damage caused by an ordinary speed bump. This “common feature of British roads” can potentially write off a £50,000 to £60,000 vehicle, he added.

This has been made worse by a shortage of specialist technicians. According to a report last year by Thatcham Research, EV claims are already around a quarter more expensive than equivalent payouts on traditional cars, and are taking about 14 per cent longer to repair. Analysts have warned that this is becoming a hurdle to the take-up of EVs.

Expensive-to-insure technology is a broader challenge. “For all cars, the technology, especially around the front and the back of the cars, has increased so much,” says Mat Wheatley, a partner at consultancy EY, adding this was a major reason why repair inflation had outstripped general inflation. Medical costs for those hurt in accidents have also risen, which is feeding through to premiums, he adds.

And there are other costs in the insurance chain. Some FT Money readers drew attention to the claims management companies and other third parties that can come in at the point of accident. Drivers who are involved in crashes that are no fault of their own say they are encouraged towards using outside companies that promise a better quality replacement car or other extra costs, that can be recovered from the at-fault person’s insurer.

‘Fronting’, or listing an older driver as the main driver on the policy, even though that person does not do most of the driving, is illegal

Fairer Finance’s Daley says insurers often have “no incentive” to keep costs down, if their insured party is not at fault. He estimates this could be adding another £500mn or more of extra costs in the system. The area was considered as part of a Competition & Markets Authority investigation in 2014 but was left largely untouched. 

For those who choose to — or can only afford to — pay monthly, another hot topic is premium finance, where customers pay the annual policy in instalments that include the interest rate on the finance. Which?, the consumer group, has drawn attention to the extra cost for customers who pay monthly, saying it amounted to an extra £300 per year on average. But the group admits this might partly reflect the greater risk presented by those customers, especially younger drivers, who are likely to choose that option.

The Financial Conduct Authority, which regulates insurers, has warned chief executives that premium finance charges have to be in customers’ best interests. The ABI considered establishing an industry-wide cap on the effective interest rate in these products, but came up against competition regulations, according to people familiar with the matter. At the same time, insurers have privately warned government about the unintended consequences of changes that make it harder to provide cover to certain customers. 

The FCA says it does not “set or control insurance prices” but is “monitoring the market closely to ensure customers are getting fair value cover”.

The Department for Transport says the newly appointed transport secretary is “urgently exploring options to crack down on spiralling costs and will announce next steps in due course”.

The ABI trade body this year published a road map to tackle motor insurance costs. This included actions the government could take, such as reducing the insurance premium tax paid by all drivers, and those for firms, including making more data available for customers to be able to judge insurance costs when choosing a vehicle.

Mervyn Skeet, the ABI’s director of general insurance policy, says that facing up to the affordability problems will take “action on all sides”. 

The ABI is also exploring a partnership with the police to help the recovery of stolen vehicles. A rise in theft costs has been a significant factor in premiums rising for some high-end cars such as Range Rovers.

Looking more broadly, there are things consumers can do to restrain the price rise, experts say. The first, as ever, is to shop around to ensure you are getting the best policy — not necessary the cheapest, but the more affordable one that gives you the cover you need. 

Adam Creen, a 54-year-old teacher in Surrey, drives a Hyundai i10 that he bought new in 2017 and has never had an accident. He told the FT he saw his insurance quote go from just under £220 two years ago to just under £410 this year, and complained to his insurer he “couldn’t believe the size” of the rises. He swapped provider and managed to get a policy for just over £250.

Another step, for those open to it, is to allow insurers to install telematics in your vehicle, which track your driving behaviour and can reduce insurance costs. Some insurers and insurance start-ups offer discounts for good driving.

Another tactic sometimes touted, for young motorists, is to add a more experienced named driver to their policy. But they must be careful not to mislead: “fronting”, or listing an older driver as the main driver on the policy, even though that person does not do most of the driving, is illegal.

Even for young drivers “there are things they can do,” says the ABI’s Skeet. “Consider the type of car you’re driving. If a young driver has a more powerful car, that is probably going to be reflected in the premiums.”

If younger or highly engaged drivers feel that shopping around is not allowing them to get their premium down, there may be something in that too, experts say. One senior insurance executive says that pricing reforms put in place two years ago to equalise premiums for new and renewing customers — assuming they have the same risk profile — had also had the effect of making it harder for younger drivers to sniff out the bargains that differential pricing had previously allowed.

The optimistic view is that this is a problem that fixes itself: that recent prices were a high-water mark, and a highly competitive market will reassert itself, bringing average premiums down year-to-year. 

Industry forecasts suggest this could happen in 2025, and quotes on comparison sites have started to fall quarter to quarter. A more significant softening could sap the appetite for intervention.

But some think the pressure from the squeeze already felt by households is too great for insurers to avoid further challenges to how they do business, whether that be premium finance or the use of data such as postcodes and credit scores in how they price.

“People are going to struggle and we are [likely] to see that rise in uninsured drivers this year,” says Fairer Finance’s Daley. “The wheels are already in motion.”