Why is the cost of car insurance increasing?

With prices rising across the board, many of us have been feeling an added pressure on our personal budget. Insurance, unfortunately, is also subject to these increases, with car insurance in particular hitting the headlines.

New research from the Association of British Insurers has revealed that people are paying more than ever for their car insurance. After reviewing 28 million motor insurance policies, the ABI found the average premium in the second quarter of this year came to £511. This is 7% more than the first part of the year, and 21% higher than this time last year. In fact, this average is the highest since records began back in 2012!

Obviously, this news is concerning. You may have already felt the impact of these price increases when it came time to renew. Or you could be fretting if your current policy needs renewing soon, wondering what lies in store.

We’ve decided to investigate these increases further, to see what’s really driving up the cost. We’ll also share our best advice for getting great value from your car insurance!

What’s causing these ‘record highs’?

Rising cost of payouts

‘Sustained cost pressures’ on insurers, caused by high inflation, are being cited as the main issue making car insurance prices rise so drastically. Essentially insurers are having to pay out more insurance claims. In June, analysis from international consultants EY said that “the UK motor insurance market experienced its worst performing year in a decade in 2022’. Their report highlighted that for every £1 motor insurers received in premiums, they paid out £1.10 in claims and operating costs.

Now, in the first three months of this year, there has been a 14% year-on-year increase, totalling a whopping £2.4 billion. Not only does this include claims for theft and personal injury, but also vehicle repairs, which have rocketed by a third to reach £1.5 billion alone. Once again, this is a record high since the ABI began collecting this data in 2013.

Higher repair costs

As mentioned above, the cost of repairing vehicles has risen sharply since the year began. But what’s behind this climb?

Firstly, the cost of replacement parts for many vehicles has increased by between 12-21% over the last year, making any fixes as much as a fifth more expensive, and contributing to the overall cost pressure insurers are facing. Supply chain issues and material shortages have played a huge part in this, making parts for repairs more difficult and more expensive to get hold of.

Secondly, the labour rates for these repairs have also shot up. The ABI reports labour rates have increased by as much as 40% between June 2022 and January this year. The combined effect of all these price increases is forcing insurers to account for the higher costs.

Energy charges

As well as impacting our household energy bills, energy inflation is also significantly affecting car insurance premiums. The ABI estimates that as of February this year, higher energy costs were adding an average of £71.75 to each repair carried out.

It’s also worth noting how an increase in energy bills has affected repairers. Many didn’t qualify for government support and have been forced to absorb the full extent of soaring energy costs.

‘How can I lower the cost of my car insurance?’

We understand that the uncertain outlook on these price pressures and when they could reduce is weighing on your mind. But there are some ways you can minimise a potential price shock.

Speak to a broker – brokers will help you find the right balance of making sure you are only covered for what you need, while avoiding costly underinsurance.Don’t wait until the last minute – you can start looking in the months leading up to your renewal date. Generally, the later you leave it, the more you’ll end up having to pay.Shop around, rather than just renewing with your existing provider. Your broker is here to help!Build up and protect your No Claims to get the best discounts.Combine policies to save, for example A-Plan allows clients to combine their car and home insurance to save £303, or £486 if you include van.*

Some other considerations to be aware of are:

Raising your voluntary excess can reduce your premiums. But, it’s also important to weigh this up with whether you could afford to pay the excess in the event of a claim. This is an area where a broker like A-Plan can offer extra support, as products such as excess protection could help you claim it back.  Check car insurance groups prior to buying – Group 1 is the cheapest to insure, while Group 50 is the most expensive.‘Modding’ your car could increase your insurance premiums so check with your insurer before you start – or speak to A-Plan as we have specialist teams who can help find you the correct cover without hurting your pocket. Whatever you do, don’t avoid telling your insurer, as you could find a claim is cancelled.  Can you lower your mileage? The less you drive, the lower the risk of an accident, which can help keep premiums lower.Consider switching from Comprehensive to Third party – but be aware that this is not always a cheaper option.Be mindful that, although some insurers may sell what appears to be a cheaper policy, it could come without essential cover for windscreens and more.

Are you using an insurance broker?

Based on the current insurance landscape, it’s more important than ever that when it comes to renewing or obtaining new insurance, you get the right advice. There are many insurance products available, but our expert brokers can help navigate the various options available, to build a plan that’s tailored to suit your needs. You need to be 100% sure that you’re getting value for money, with no surprises or corners cut.

That’s where our branch colleagues can really help. If you are concerned, or facing difficulties, your local branch team is on hand and available to help you. Give them a call or simply pop into your local branch for a chat.

Sources: BBC, EY, ABI