Car insurance prices soar 29% in a year to hit a new record high, ABI says

Car insurance premiums have risen by 29 per cent in a year to a record average of £561, adding to the pressure on struggling households.

Insurers say rising costs of replacement parts and labor were behind the increase in annual insurance costs in the third quarter of 2023.

The average premium of £561 was a 9 per cent increase on the previous quarter and a 29 per cent increase on the same period in 2022, according to industry body Association of British Insurers.

The ABI tracker looks at the price paid for 28 million car insurance policies.

The trade body said car insurers were being forced to pass on their own rising costs to customers as premium increases.

These costs include the higher price of replacement auto parts and labor. She has also called on the government to reduce taxes on insurance premiums (see below).

Insurers have reported that the cost of paint has increased by 16 percent in a year and that of spare parts by 11 percent.

The other costs, largely caused by the high energy price, have increased by 46 percent.

Furthermore, as new cars become more technologically advanced, they also become more expensive to repair.

Insurers also report that a shortage of skilled repairers is driving up the cost of claims as repairs are delayed.

This also means that drivers need a replacement car for longer periods, another huge cost for insurers that is passed on in the form of premiums.

Stealth tax that drives up premiums

The ABI has also introduced a stealth tax on insurance which now adds £60 to the average driver’s annual premium.

Insurance premium tax (IPT) adds 12 percent to what motorists pay for insurance.

Last year the tax raised £7.45 billion for the government, although it is also levied on items such as home and travel insurance.

The tax is charged to insurers, who then almost always pass it on in full to the consumer.

But as insurance premiums rise, the effect of IPT increases, because the government essentially takes the ‘real’ premium and adds 12 percent.

The ABI is now calling for this to be reduced in the Chancellor’s autumn statement later this month.

Mervyn Skeet, general insurance director at ABI, said: ‘We recognize that another quarter of higher car insurance premiums will be worrying for households already struggling with rising costs in other areas.

‘Insurers continue to do everything they can to keep car insurance prices as competitive as possible, despite being faced with significant cost increases over which they have no influence.

‘We bring together representatives from across the industry to discuss issues such as vehicle safety and security. However, the government could help motorists with a direct cost reduction by reducing the Insurance Tax.’

How to save money on car insurance

Shop

This is the best way to save on car insurance. Drivers can save hundreds of dollars if they shop around when renewing their coverage.

Insurers are no longer allowed to charge renewing customers more than new ones. This means that if a driver renews, he must receive the same (or less) premium than if he had taken out a new policy with the same insurer.

But it may still be possible to get a better deal by shopping around.

Consider ‘black box’ telematics insurance

With black box policies, the insurer uses a system in your car to monitor your driving, either on a separate device or via the driver’s smartphone. These are designed to reward those who drive carefully.

They can reduce premiums significantly once you start proving that you are a good driver. Some insurers even offer an upfront discount if you take out a telematics policy.

Be careful with said drivers

Another way to reduce premiums is to ensure that only permanent drivers are listed on the policy.

Adding a young, inexperienced driver can be a false economy, especially if you have a large vehicle or a more powerful vehicle.

The premium is affected by the youngest driver and he or she may not have a no-claim bonus.

Pay annually if you can

When taking out a new policy, drivers are given the choice of paying for the entire year in advance or in monthly installments.

Many opt for monthly payments because this means that you do not have to pay a large sum of money at once. But if you can afford to pay your annual premium up front, you can save money.

Your insurer may charge you interest on the monthly installments. It’s worth asking them if there is a difference and, if so, what it is.

Only pay for what you need

Some car insurance policies include additional benefits, such as a replacement car, windscreen cover, breakdown cover and statutory motor vehicle protection.

These can all certainly come in handy, but they will almost always increase the overall cost of insuring your car.

Many consumers who buy additional insurance then forget they have it, and some deals are only claimed once every 664 years.