The price of insurance – higher, lower?

There’s no other way to say it: insurance prices have risen to astronomical levels. Following on from our still-ongoing cost-of-living crisis, the recent increase (up to 90% in some instances) has felt like ‘yet another thing’.

As a ‘high street’ insurance broker, we see first-hand the distress such a big jump in price can cause to clients. We know it’s been an incredibly stressful time, financially. Insurance price rises have made people cut back on their policies to afford the bare minimum, leaving them potentially underinsured, teamed with rogue advice proliferated across the internet.

Not only do we want to help you understand why prices have risen so much, but we also wanted to review how things are now, assure you that we are by your side, and offer a glimmer of hope.

Why has car insurance risen so much?

Is it opportunistic, is it another sector putting their prices up just because everyone else is? It’s only natural to feel the frustration, particularly against the backdrop of inflation slowing, and energy bills beginning to reduce.

So why isn’t the insurance industry following suit? And how did we even get to this point?

The Association of British Insurers’ Motor Insurance Premium Tracker showed that car insurance was, on average, 25% more expensive in 2023 than in 2022. Between 1st October and 31st December 2023, the average premium was £627, compared to £562 in the previous quarter! 

So, how is 2024 looking? Economic conditions remain difficult and in December 2023 EY forecast that car insurance premiums would rise by 10% in 2024, £58 per policy on average. However, more recently, market researcher Consumer Intelligence has suggested there are signs of a ‘possible slowdown’ in quoted motor insurance premiums.

However, the reality for many people is that many are paying £1,000 a year for their car insurance at the moment, if not more.

Increase in car theft

While the number of cars stolen has dramatically decreased over the past 20 years (Statista reports 2002/2003 saw 307,000 cars stolen vs 130,521 in 2022/2023), there has been a recent uptick in thefts over the past year.

This uptick in vehicle crime has been aligned with a decrease in funding for the police, which resulted in a decline in officer numbers. While things are now improving, it will take some time to see a reduction in crime statistics.

You can read more about car thief’s dangerous tactics and keeping your vehicle safe here, and even find out how to get a free faraday pouch for extra protection.

Cars are more expensive

The increase in car theft is not the only thing that has risen. The cost of cars now is significantly more than they were a decade ago, with onboard computers complicating matters and superior technology that, while making them far more reliable, also makes them costlier to repair and replace.

This is also due to fewer new cars produced during the pandemic, swiftly followed by supply chain issues. The knock-on effect is a depleted used-car supply. As a result, the second-hand market added big increases to their price tags, with some in the industry believing that prices will continue to rise in 2024, although those keeping an eye on the forecourts may be seeing things returning to a more realistic price.

Of course, the knock-on effect here is that, when it comes to insurance claims, these vehicles are more expensive to repair (due to lack of parts and increase in energy prices), a courtesy car is harder to find, and the vehicle in question is more expensive to replace.

How expensive is home insurance now?

While car insurance dominated the headlines, home insurance costs have been creeping up in the background. But reflecting back on 2023, the median cost of home insurance policies rose 36%. An average buildings-only policy (opposed to a combined buildings and contents) had a 15% increase from £262 to £284. Why?

Higher cost of materials

First, general claim values have increased as property prices have soared in recent years. Higher building material costs and skill shortages have added to rebuild and repair charges. In the two years to January 2024, the price of raw materials and labour costs rose by a whopping 21%. The knock-on effects are being felt across the insurance industry.  

Weather changes

We’ve experienced several severe weather events in the last few years. Insurers paid out over £350m to deal with 36,000 claims following Storms Babet, Ciaran and Debi – and these were just three of the six storms that battered the UK in the last months of 2023. The full insured costs of these storms aren’t yet known but ABI data shows that insurers expect to pay out £560 million to help customers whose homes, businesses and vehicles were damaged during storms Babet, Ciaran and Debi. The cold snap at the start of this year also meant surge in bust pipe claims. This is certain to have generated more claims, particularly against the cost-of-living backdrop where ordinary people can no longer afford these types of repairs themselves and revert to their insurers, where they have previously covered certain repairs themselves.

You can see how, combined with the higher costs to repair these claims, the problem has snowballed. And when you consider just how impactful climate change is – with even Saudi Arabia hit by floods – the higher frequency and severity of extreme weather, ultimately impacts the number of claims made, and amount insurers pay out.

Will prices drop in 2024?  

Firstly, as your friendly broker, we want to reassure you that this topic is discussed constantly in the industry. Car insurance costs have been a key driver of inflation rises, which reached a 40-year high in 2023. And research conducted by the Guardian found that three quarters of drivers who renewed their policy this year are paying more than the previous year.

Interestingly, some insurers already believe that car insurance has now peaked, and we should start to see costs reduce over the following year. However, others feel there is still room to climb and it’s too early to tell exactly when things will begin to change.

When it comes to home insurance, it is far more susceptible to changing climate conditions and weather disasters. It’s clear that more mitigation strategies are the best way to maintain stable premium prices. Support for retrofitting to protect against flooding, subsidence, storm damage and heat stress could make a massive difference, as could regulation to ensure new properties are built to better, more resilient standards. But how much will this cost the consumer?

How can I find a lower insurance quote?

The key to navigating this period is to engage with a broker, who can scour the market for you and find you the right policy, at the best price. The added benefit of using a broker is the mine of information they can provide as part of the process. You may wonder whether Third Party is indeed cheaper than Comprehensive, or whether it’s worth increasing your excess, or even covering it, to save money. Perhaps you’d like to consider whether it’s worth switching to monthly direct debit to ease the price shock. They will also have a wide panel of insurers to liaise with, with access to a range of options and prices.

An insurance broker be the first to know when the situation begins to ease, much like a mortgage broker keeping an eye on interest rates.   

Sources: Statista, Car Dealer, Thisismoney, Which?, USwitch, The Guardian, Financial Times