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Car insurance premiums have risen nearly 50 percent in the past year, hitting millennials and older drivers the hardest.
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Exclusive data from analysts Consumer Intelligence, which examined quotes from Confused.com, Go Compare, Compare the Market and MoneySuperMarket, shows average premiums rose by an average of 48 percent in the 12 months to June 2023. This is the highest level since 2018.
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Car insurance is quickly becoming one of the most expensive household bills, causing more financial pain at a time of high inflation and rising mortgage and rent payments.
In June, Ernst & Young economists warned that 2022 will be a tough year for insurance, predicting a 16 percent increase in premiums by the end of 2023. However, the latest data shows that they have quadrupled.
David Trenner, 67, was shocked to discover last month that the annual premium for his Renault Clio had risen by 93 per cent from £283 to £547. “I expected a slight increase due to inflation, but not 93 per cent,” he said.
According to Consumer Intelligence, 25-39-year-olds and over-65s have been hit the hardest by car insurance hikes, with average premiums jumping more than 50 percent. Drivers in Scotland and London saw the biggest price increases.
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That’s because managers at the top five companies earned six- and seven-figure salaries and bonuses last year. Admiral Group chief executive Milena Montini de Focatis was paid a total of £2.15m and CFO Geraint Jones £1.23m, while Aviva chief executive Amanda Blank received £5.52m.
“Cost inflation will be a factor, but 48 percent [of the overall increase] cannot be accounted for.” Lack of transparency of insurance risk models and a post-pandemic surge in claims are possible reasons, he said.
But he admits that there is not much that can be done: “I am not sure what the regulator can do because the recent interventions have generally resulted in higher premiums for most people. can again
The Financial Conduct Authority (FCA) says rising maintenance costs are driving up car insurance prices, but Tim Kelly, insurance expert and owner of MotorClaimGuru.co.uk, says some insurers are raising prices to boost profits. The covid pandemic.
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“There is a lot of smoke and mirrors. Insurance companies have made huge profits through covid. Now that we have entered a different economic environment since Covid, insurance companies want to make a profit, not absorb the increase in inflationary costs. In short, consumers are the losers and insurers are champion,” he said.
An FCA spokesman added: “We will continue to monitor the market to ensure customers are getting a fair deal from their suppliers.”
According to insurers, the main culprit is inflation. According to the Association of British Insurers, rising energy bills and higher paint and material costs have driven up repair costs, which have risen by 33 per cent. The cost of cars has increased by about 30 percent, while inflation has also increased the cost of personal injuries.
Catherine Carey, head of marketing at Consumer Intelligence, said: “Thanks to this inflation and the lack of premium increases in 2022, the motor insurance market reported a significant loss. Insurers are now adjusting prices to cover this loss and reflect the ongoing impact of inflation.
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Meanwhile, insurance fraud exploded in the wake of the cost-of-living crisis. Between March 2022 and April 2023, motor insurance fraud was the most common form of opportunistic fraud reported by the City of London Police’s Insurance Fraud Enforcement Unit.
“By inflating claims or providing false information when applying for insurance, fraudulent consumers drive up insurance costs for everyone,” Ms Carey said.
Another factor is the change in control. Starting in 2022, the so-called loyalty penalty is banned, meaning insurers cannot charge existing customers more than new ones.
Charts and data from four top comparison sites show sharp rise in car insurance premiums last year (Consumer Intelligence)
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James Daly, managing director of consumer group Fairer Finance, said it has pushed up prices for everyone – especially those who buy cheaper policies every year.
“Premiums have increased by two main factors – inflation and regulatory changes. The cost of auto repair and car parts has increased more than anything last year – such as personal injury. All this increases the cost of insurance,” he said.
According to experts, behavioral changes also have an effect. Two years ago, the number of reports was lower than usual because more people were driving during the outbreak. But now that people are returning to their normal routines, claims are rising again – and so are premiums.
The increasing number of electric vehicles may also play a role, as their maintenance costs are higher than conventional cars. “New high-tech vehicles with sensors, cameras and high-voltage systems increase the cost of spare parts and require specialist workers to install them,” added insurance company LV.
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Direct Line said it prices customers’ policies “based on our view of risk, the rating factors we use and inflation.”
Those aged between 25 and 39 and those over 65 experienced the highest rate of car insurance inflation, with increases of 52 and 50 per cent respectively.
The lowest increase of 38 percent was observed for the age group under 25, which traditionally has the most expensive premiums. This may be due to the available telematics policy, which records the driver’s speed and braking distance to assess risk and protect young driver prices.
Motorists may be more expensive due to accommodation. The biggest growth was in London and Scotland, where subscriptions for new policies rose by 53 per cent. The smallest average increase was 43 percent in the Northeast and 45 percent in the Northwest.
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However, an analysis of the top five quotes provided by comparison sites most often chosen by consumers tells a slightly different story. 25-39 year olds face the highest car insurance inflation (47 per cent), followed by 17-24 year olds and over 65s (both 46 per cent).
According to the DVLA, the increase in premiums for older customers is due to the increase in the number of drivers over the age of 80, which has risen by 18 percent to 1.7 million over the past two years. Older drivers have a greater risk and increase the average price for the over 65 age group.
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According to price comparison company Confused.com, insurance premiums for 17-20 year olds have risen on average by more than £1,000 compared to the same period last year.
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Steve Dukes, chief executive of Confused.com, told Radio 4’s Today programme: “The frequency of claims has increased in the last few years since the explosion, but so have the costs.
“Used cars are more expensive than they used to be, the cost of spare parts, the cost of repairs – everything is given to customers.”
Prices for used cars – a common first vehicle for newly qualified young drivers – have fluctuated in the months since the Covid-19 outbreak. Demand for used cars has increased as production of new vehicles has slowed due to global shortages of computer chips and other manufacturing materials.
According to data from the National Statistics Office, in March 2022, there is a 31% price increase in the used car market. After that, they plummeted.
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However, the sharpest jump is faced by young competitors. Fees for 17-year-olds rose by an average of £1,423 to £2,877. For an 18-year-old driver, the average cost of the policy reached £3,162.
The figure is calculated based on the average of the five best quotes received on Confused.com, rather than the actual price paid for the policy.
Dukes said there are ways to lower the fee. “Where you can legitimately share driving with an older, more experienced driver and add that person as a named driver, it can make a really big difference and cut costs by hundreds of pounds and it’s worth looking at,” he said. .
Mr Dukes advised young motorists to explore telematics or ‘pay as you drive’ insurance.
