THE average cost of car insurance has risen sharply over the past two years as industry experts highlighting inflation and elevated interest rates on monthly payments as the main driving factors.
Data published by the Association of British Insurers (ABI), who represent more than 300 insurance firms, shows that in the past two years insurance policies in the UK have risen by almost £200.
Using data based on prices paid and not quotes for car insurance policies in the UK, the ABI’s research shows the average premium is now £622 in comparison to £419 in the same quarter two years ago.
According to its most recent figures, the average price of motor insurance dropped by 2% in the second quarter from £635 in the first part of the year.
One of the main reasons for the increase in car insurance premiums over the last two years according to the ABI is due to the increase in inflation.
The ABI explained that due to material and labour costs rising, making cars more expensive to repair or replace, car insurance premiums have increased to cover the costs.
According to the ABI, insurers are spending more on claims and costs than they are collecting in premiums.
A study from market analysts EY estimated that in 2023 for every £1 motor insurers received in premiums, they paid out £1.13 in claims and operating costs.
Similarly, in 2022 insurers paid out £1.11 in claims and expenses for every £1 collected in premiums, according to the study.
Jonathan Fong, manager of general insurance policy at the ABI said: “Insurers are aware of the financial challenges customers are facing and are determined to keep motor insurance as competitively priced as possible.
“Our motor premium tracker is the only collection based on the price customers pay for their policy, rather than quotes, and shows that the average motor premium fell by 2% in the second quarter of this year to £622.
“During the same period, insurers paid out £2.9 billion in claims, up 18% compared to the second quarter of 2023, driven by above inflation increases in the cost of repairs, thefts and replacement cars.”
According to research from consumer group Which? motorists paying for car insurance in monthly instalments could be facing costs up to 50% higher due to elevated interest rates.
The report, which was published last week, raised concerns about the fairness of those who face a higher financial burden due to being unable to pay for their insurance policies upfront.
The consumer watchdog has called for the Financial Conduct Authority (FCA) to act as it described the high interest rates as a “tax on being poor”.
Motorists usually have the option to pay their insurance annually or in monthly instalments.
People can opt to spread the financial burden by paying monthly, however, insurers often charge interest on monthly payments.
The report discovered the average APR for car insurance in the UK is 22.33% and identified several car insurers with high APRs on monthly payments.
Rocio Concha, director of policy and advocacy at Which?, described this practice as “blatantly unfair” and has called for the industry regulator to step in.
She said: “Many customers who pay for home or car insurance monthly don't do so out of choice, but financial necessity.
“That these same customers can end up paying over the odds compared to those who pay for cover annually is blatantly unfair.
She added: “Car and home insurance policies aren't nice-to-haves, but essential for motorists and homeowners.”
