Why has car insurance gone up?
Whether reviewing your monthly budget or shopping for quotes, find out why car insurance premiums have gone up, on average, and how you can limit their costs.
In some industries, prices are hovering higher than in previous years. Footnote [1] You may see it scanning your grocery items at checkout. Or watching the energy meter ticking faster than your home warming up.Footnote [1]
So, as you sit around your kitchen table or scroll your banking app to work out your monthly budget, it’s worth understanding what’s happening with car insurance prices.
In this article, you'll find
Why has car insurance gone up?
Lots of reasons. And yes – it’s complicated, but the reasons are like dominos. One reason affects the next, pushing the others forward. Here are five of the main reasons:
- Repair costs – repair costs jumped 32%, between July - September 2023 (Q2 and Q3). This is the largest, single domino that’s affecting car insurance prices. Footnote [2] “This reflects,” says the Association of British Insurers (ABI), “a mixture of cost of labour, energy and also the fact that vehicles are becoming more sophisticated, with the likes of electric vehicles requiring ever more specialist expertise to repair.” Footnote [2] So, as repairs cost more, it means insurance providers are paying more to fix cars through claims. Also, longer repair times are driving up the cost of providing replacement vehicles by 47% (Q3 2023). As the average costs of new cars goes up (43% over five years), so does the cost to replace cars that are written off Footnote [2]. And electric vehicles aren’t entirely off the hook either. A 2023 UKRI and Thatcham Research report on battery electric vehicles (BEVs) notes that, when assessed, BEV claims were 25.5% more expensive than their ICE (internal combustion engine) equivalents and took 14% longer to repair. Footnote [3] It seems that electric vehicles could be more expensive to fix than their petrol counterparts.
- Traffic and accidents – we’ve returned to pre-Covid traffic levels and collisions. Footnote [4] Rather expectedly, this hits on repair costs and the costs of claims rising.
- Insurance Premium Tax – the fixed rate on the insurance premium tax (IPT) is further aggravating insurance costs. The IPT is a tax paid by insurers and covers general insurance premiums, including car insurance, home insurance and pet insurance. But, the IPT rate doubled since 2015 (from 6% to 12%) and it’s remained at 12% for the past 7 years. This means, on average, the IPT currently adds £67 to the cost of the average price paid for motor insurance. Footnote [5] And, based on a recent ABI survey, 67% of the 2,000 polled weren't aware of IPT. “50% of people said they had little or no idea of the impact that IPT had on their insurance costs.” Footnote [5]
- Not exactly pound for pound – it’s estimated that for every £1 collected in premiums, the insurance industry pays out £1.14 in claims and expenses. Footnote [2] As a result, this can impact prices for consumers.Footnote [6]
- Theft – the fifth reason revolves around theft, with payouts for vehicle thefts rising 35% in Q3 2023 (versus Q3 2022). Footnote [2] In the most general terms: the more car-related things are stolen > the more claims may be submitted > the more insurance companies may pay out > (eventually) the prices on premiums may go up collectively.
How much has car insurance gone up?
Analysing nearly 28 million policies sold in a year, based on the price customers pay for their cover (rather than what they’re quoted), the ABI’s Motor Insurance Premium Tracker covering 1 October – 31 December 2023 (Q4 2023) found that:Footnote [2]
- average premiums paid are up 12% on the previous quarter (Q4 versus Q3 2023).
- the current average premium is 34% higher compared to Q4 2022, when it was £470. The average comprehensive car insurance premium is £627.
- motor cover was 25% more expensive on average across the whole of 2023 than in 2022 (£543 versus £434).
What affects car insurance prices?
The cost of your car insurance premium may not only be based on how likely your insurer thinks you'll claim, but also how big they think that claim may be. And part of that is figured out by some fancy maths alongside:
- your age and driving history – young drivers are often considered riskier than older, more experienced drivers. And no claims discounts may help bring your premiums down. If you’re curious about getting a no claims bonus, check out our article on how to get proof of your no claims bonus .
- where you live – much of your driving is often near your home. So, your postcode can help insurers figure out risks, from how densely populated the area is to traffic trends and crime rates.
- where you park overnight – keeping your car safe overnight may lower the risk of theft or accidental damage.
- your job title – make sure this is accurate and you’re not downgrading or upscaling what you do. Honesty is truly the best policy here (oh, see what we did there). So, if you’re a freelance writer travelling the globe, don’t put down that you’re the local librarian or a researcher.
- the make and model of your car – this helps insurers figure out the value of your car. And, in turn, this helps determine which insurance group it’s part of. There are up to 50 insurance groups (1 to 50). The lower the group number, generally, the cheaper the vehicle may be to insure.
- your yearly mileage – how many miles you drive in a year will have considerable sway on the cost of your premium. Generally, the more you drive the greater the risk of something happening.
- your voluntary excess – or how much you’re willing to pay, on top of your compulsory excess, toward any claim you make. Generally, the higher your voluntary excess, the cheaper your premium may be.
In addition to these factors, which insurance providers review, there are certain forces in the larger economic world that affect insurance costs. From regulation changes to inflation and stagflation, some economic activity puts greater pressure on insurance costs. And they may be wholly outside providers’ control.
How can I reduce my car insurance?
While some factors are completely outside of your control, you can take steps to help limit your car insurance costs.
Five steps to help keep costs low
Here are five steps to help find or keep a lower premium:
- Drive a practical car – while a vintage sports car may be great fun, it won’t do you many favours on your premium. Driving smaller, energy efficient cars tend to be in the lower insurance groups, so cover may be less expensive. Also, the less modifications made to your car, the better for finding lower prices.
- Make mileage matter – check how much you’re driving based on your mileage. Often, the lower the mileage, the less money out of your pocket.
- Park safely – you may be able to get lower premiums if you park your car in a drive or garage rather than on the road overnight.
- Connect your car – younger, less experienced drivers may receive a lower premium by taking out a connected car (telematics) policy. This will monitor driving behaviour and can offer rewards or discounts for safer driving. Check out Quotemehappy Connect for an app-based insurance policy specific to young drivers (aged 17-29).
- Pay in full – it may help reduce the price of your car insurance if you can afford to pay the amount in full annually rather than monthly.
A range of coverage options
Car insurance prices have increased significantly and you’re most likely feeling the pressure in most areas of your monthly budget, especially with rising living costs.
But, there are some dominos we can help keep from toppling.
With our Quotemehappy.com Essentials, for example, you can have a comprehensive car insurance policy without some cover elements like personal belongings, European cover and windscreen or glass only claims. It cuts the fluff and protects what’s essential, limiting your insurance costs. Also, it’s exclusively online and self-service, offering straightforward car insurance with access to a 24/7 claims service.
We are committed,” says Iain Hamilton Aviva’s Head of Pricing and Underwriting (Personal Lines), “to ensuring our products continue to provide value for money. We continue to take actions across our business to minimise the impact of inflation on customer premiums. Whether that's continued investment and expansion of our owned repair network, where we can better control costs, through to designing new products that provide customers with greater choice, such as our Quote Me Happy Essentials product, we constantly strive to improve our products and value for our customers.
Related articles
