Over the last few years, there has been an increase in the cost of many goods and services, with motor insurance policies being no exception.
In this blog post, we'll explore this increase in motor insurance premiums, the reasons behind rising costs and what actions are being taken to help drivers nationwide.
Exploring the increase in motor insurance premiums
Motor insurance premiums have increased year-on-year since 2021, with an astonishing jump from a £629 average to £995 between Q4 2022 and Q4 2023.
New analysis from Ernst & Young suggests that premiums will continue to rise, with an extra 10% increase expected in 2024, following a 21% hike in 2023.
Younger drivers are those hit hardest by these increases, with the average price of car insurance for 18-year-olds now above £3,000 for the first time.
How much has motor insurance increased?
According to data from the Association of British Insurers (ABI), the average price of motor insurance was a record of £561 in the third quarter of 2023.
Compared to the third quarter of 2022, this was an increase of 29% — not to mention a 9% increase on Q2 2023.
The factors behind this increase
The increase in premiums may surprise those renewing their motor insurance, especially if situations haven't changed since their previous renewal.
However, the cost of materials and labour in repairing cars and/or property are the key reasons behind the recent rises.
Per a report from the ABI, insurers have stated that paint costs have increased by 16% and spare parts went up 11% from Q3 2022 to Q3 2023.
Other costs — due to the increase in energy prices — are up by as much as 46%.
Additionally, a study by EY reported that for every £1 motor insurers received in premiums in 2022, they paid out £1.10 in claims and operating costs.
With this in mind, along with supply chain delays, increasingly sophisticated car technology and inflationary pressures, it becomes less of a surprise that premiums have risen in such a manner.
A deeper look into the numbers
Here are some other statistics to be aware of on the increase in motor insurance premiums:
- UK motor insurers anticipate more significant losses in 2023 than expected due to inflation, material costs and claims costs, which could see 2023 as the worst-performing year since 2010. (EY)
- There was an average rise of £118 per policy in 2023, with a further 10% increase forecasted for 2024. (EY)
- In Q3 2023, some insurers reported an increase of 16% in material costs, 15% for labour costs and up to 46% for other bills. (ABI)
What measures are being taken to lower motor insurance premiums?
The ABI is working with industry bodies such as the Society of Motor Manufacturers and Traders (SMMT) and Thatcham Research to understand areas of concern between insurers and manufacturers.
Insurance Premium Tax (IPT) is 12% of every motor insurance premium, currently around £60. The ABI calls for reducing this tax, saving drivers money while seeing insurers getting the funds they need to remain profitable.
IPT is applied to most general insurance products, including motor, home, health and pet insurance, and it generated £7.45 billion for the Government in 2022.
Mervyn Skeet, the ABI's Director of General Insurance policy, said: "Insurers are doing all they can to offer competitively priced insurance, despite facing some substantial increases in costs outside of their control.
"Now has never been a better time for the government to show its support to the millions of homeowners and businesses who do the right thing by protecting their families and livelihoods against sudden financial shocks, than to reduce Insurance Premium Tax."
In February 2024, the ABI announced further plans to combat rising motor cover costs for low-income households.
Working with its Customer Advisory Group, the ABI will investigate the impact of various social policies that are focused on helping these households manage insurance costs.
ABI members are also 'committing to better explain how insurance premiums are calculated' while outlining steps customers can take to reduce costs.
Although motor insurance is competitively priced, the industry has set a clear objective to combat recent price increases.
The ABI has outlined a 10-point roadmap to tackle these rising costs, which is as follows:
- Help consumers make informed decisions
- Combat vehicle theft
- Tackle fraud and uninsured driving
- Improve road safety and infrastructure
- Support new drivers
- Reduce the impact of Personal Injury Discount Rate (PIDR)
- Continue whiplash reform
- Advocate for safety-focused vehicle tech
- Lower insurance premium tax (IPT)
- Support the repair sector.
The entire breakdown of the 10-point plan can be found here.
How insurers can control costs
With benefits such as an in-house 24/7 contact centre, open API for agile data transfer and a fully-managed repair network, insurers can control costs and improve customer service by outsourcing their solution.
Motor Assist can handle FNOL via digital channels or traditional means and provide a comprehensive service from third-party capture and repair placement to mobility and uninsured loss recovery (ULR). Alongside our ULR offering, we also provide legal expense insurance (LEI) to add extra value for our customers.
Want to learn more about Motor Assist's fully modular offering and how it can reduce insurer costs? Click below to discover what makes us, us.
