Car Insurance Costs Skyrocket: Average Premium Reaches Record High
In recent months, the cost of motor insurance has skyrocketed, leaving motorists in shock as their premiums reach record levels. Insurers have reported staggering increases in costs, driven primarily by the rising prices of materials, labor, and energy. This alarming trend has prompted calls for urgent action from the Association of British Insurers (ABI) and demands for a reduction in the exorbitant Insurance Premium Tax (IPT) imposed on motorists.
The third quarter of 2023 witnessed a significant surge in the average price of motor insurance, reaching an all-time high of £561. This marks an astounding 29% increase compared to the same period last year, according to the latest data released by the ABI. The association’s Motor Premium Tracker, which offers unparalleled insights into the UK’s insurance market based on actual premiums paid by customers, analyzed nearly 28 million policies sold over the past year.
Let us delve into the distressing figures that highlight the magnitude of these insurance hikes:
1. Average price paid for motor insurance from July to September 2023: £561
2. Increase of 9% from the second quarter of 2023
3. Increase of 29% compared to the third quarter of 2022
As insurance costs continue to surge, motorists find themselves trapped in the grip of inflationary pressures. Insurers are experiencing difficulties due to delays in repair and supply chains, coupled with rising costs of parts and materials. The advances in car technology have further exacerbated this issue, resulting in significantly higher repair expenses. Moreover, a shortage of skilled technicians has caused delays in repairs, adding more financial burden to insurers and ultimately driving up premiums.
To illustrate the extent of the problem, insurers have witnessed a staggering 16% increase in the cost of paint and an 11% rise in spare parts expenses from the third quarter of 2022 to the same period in 2023. Furthermore, other costs, primarily influenced by the soaring price of energy, have surged by a massive 46%. These factors have had a direct impact on the cost of claims, fueling the rise in premiums.
A study conducted by EY shed light on the financial strain faced by insurers. It revealed that in 2022, motor insurers paid out £1.10 in claims and operating costs for every £1 they received in premiums. As insurance companies continue to grapple with escalating expenses, they are collaborating with industry bodies such as the Society of Motor Manufacturers and Traders (SMMT) and Thatcham Research. Together, they aim to identify areas of shared concern between manufacturers and insurers, particularly in terms of vehicle safety and security.
Compounding the already exorbitant insurance costs, the burden of the Insurance Premium Tax looms large. Currently, IPT comprises a staggering 12% of every premium paid by motorists, amounting to an average of £60. The ABI is urgently calling on the government to reduce this tax in the forthcoming Autumn Statement by the Chancellor. Such a reduction could offer much-needed relief to drivers, potentially saving them up to £60 on their average premium.
It is important to note that IPT is applied to a wide range of general insurance products, including motor, home, pet, and health insurance. Last year alone, this tax generated a significant £7.45 billion in revenue for the government.
Mervyn Skeet, Director of General Insurance Policy at the ABI, expressed empathy for households grappling with these rising costs. Insurers are striving to keep motor insurance premiums as competitive as possible, despite being faced with substantial cost increases beyond their control. Recognizing the urgency of the situation, the ABI is actively convening stakeholders from across the sector to address critical issues such as vehicle safety and security. However, immediate relief for drivers could be achieved through a reduction in the burdensome Insurance Premium Tax.
Motorists are advised to explore various strategies to mitigate the financial strain caused by soaring insurance costs. These include shopping around for the best deals, increasing voluntary excess, enhancing car security measures, and undergoing advanced driving courses. By engaging with insurers, drivers can gain insights into recognized vehicle safety measures and driving courses that may help reduce their premiums. Nevertheless, it is crucial to prioritize policies that align with individual needs rather than solely focusing on price.
As these alarming trends continue to grip the motor insurance sector, vigilance and proactive measures are crucial for both insurers and policyholders. The ABI remains committed to advocating for the interests of motorists and working diligently with stakeholders to address the challenges at hand. For more information and detailed insights into insurance pricing, refer to our comprehensive insurance pricing FAQs.
In these arduous times, it is essential to navigate the treacherous waters of insurance costs with caution and informed decision-making. Together, we can strive for a fairer and more affordable motor insurance landscape, ensuring that drivers are protected without bearing the burden of exorbitant premiums.