Why are motor insurance premiums at a record high?
Analysis by The Association of British Insurers (ABI), which looks at 28 million motor insurance policies, suggests that the average price paid for motor insurance in the second quarter of 2023 continued to increase.
The average premium paid for private comprehensive motor insurance was up 7% on the previous quarter at £511. The average price paid by motorists renewing their cover rose by £36 on the previous quarter to £471, while the average premium for a new policy was up £21 to £566. It’s worth noting that there is likely to be a different risk profile for new and renewing customers, as new customers may be more likely to be a younger, less experienced driver.
The rising costs for insurers leading to premium increases:
Increase in motor insurance claims. Insurers paid out £2.4 billion in motor insurance claims, that includes vehicle insurance theft, repairs and personal injury claims in the first quarter of this year. Compared to Q1 2022 the total was up 14%.
Increase in vehicle repair costs. There has been an incredible 33% increase in vehicle repair costs over the year since Q1 2022 to £1.5 billion. This figure reflects the rising costs in energy and inflation, with more expensive repairs.
Increase in labour costs. The cost of labour in the motor industry has also risen by up to 40%.
Increase in replacement parts. It is estimated that the cost of replacement parts has increased between 12-21% for many popular cars.
The FCA rules on the pricing of motor and home insurance introduced on 1 January 2022 ensure that the price paid by renewing customers for motor and home insurance 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 price of cover will continue to reflect a range of factors, including the cost of settling claims.
With the cost-of-living crisis set to continue with inflation and interest rates increasing monthly, the added pressure for increased motor insurance premiums is difficult to absorb for households. With insurers determined to keep premiums as affordable as possible, now is the time to seek advice from Sutcliffe & Co Insurance to ensure you have the right cover.