Government orders are now investigating car insurance premiums rising by a fifth in TWO years

The government has demanded answers as to why the cost of car insurance has risen by 21 percent in the past two years.

Insurers will also be asked about those most affected by rising costs, including ethnic minorities, people on lower incomes and older and young drivers.

A taskforce has been set up by Transport Secretary Louise Haigh and the Department of Finance’s economic secretary Tulip Siddiq.

The group will bring together industry groups and consumer champions such as the Association of British Insurers (ABI), Citizens Advice, Which? and Compare the Market, as well as insurance regulators.

According to an analysis by the Financial Conduct Authority (FCA), car insurance premiums have risen by an average of 21 percent since June 2022.

Alternative figures from the ABI suggest these premiums have actually increased by 48 per cent, from £470 per year in June 2022 to £622 per year in June 2024.

That is much higher than in comparable economies such as Germany, France, Spain and Italy.

Motoring body says the cost of taxes and car insurance combined has risen by 224 per cent in the ten years to September 2024.

The new task force will identify the reasons for the rapidly rising premiums and agree solutions to keep costs under control.

Factors driving up the cost of insurance include inflation, increasing car thefts, the cost of repairs on more advanced vehicles and increasing potholes.

The group will also assess whether consumers are getting fair value for money, based on advice from regulators the FCA and the Competition and Markets Authority (CMA).

Transport Secretary Louise Haigh said: ‘Car insurance is essential and not a luxury. Accessing economic opportunities is critical and this government is committed to getting costs under control.

“That’s why we’re taking immediate action to bring insurance companies and regulators to the table to discuss how we can reduce rising costs.”

Is the increase in car premium unjustified?

Some experts in the auto insurance world believe that much of the premium increase comes from the inefficiencies of insurers themselves, for example when it comes to properly understanding and pricing risks.

Others say there is a ‘follow the leader’ effect among car insurers, where one company raises prices, causing the others to follow – something that is hard to resist after years of fierce price competition .

Similarly, insurers have been criticized for making sweeping statements about how difficult the industry is. The ABI often points out that insurers paid out £1.13 in claims for every £1 collected in premiums in 2023, according to consultants EY.

However, critics say that these amounts do not include the money insurance earned from investments, which can be enormous.

Matthew Maxwell Scott, executive director of the Association of Consumer Support Organisations, said: ‘It is regrettable that the promised CMA/FCA investigation, which would have been independent, has been shelved in favor of a largely industry-led approach.

“Insurers made a fortune during the pandemic, but management largely failed to anticipate the direction the market would take post-pandemic, and customers paid the price through skyrocketing premiums.

‘As car insurance is a mandatory product, insurers need to be much more transparent about prices, and especially when it comes to investment returns and the profit they make from customers who choose to pay their premium monthly.’

Critics also say the increases in auto premiums are at odds with the fact that the single most important thing auto insurance premiums pay for — bodily injury claims — are falling.

John Kushnick, legal director of the National Accident Helpline, said: ‘While the response and ‘direct action’ are welcome, this taskforce must get to the heart of rising premiums. The Department of Transportation has explained that certain factors, such as the car theft epidemic and inflation, are forcing insurance premiums to rise.

‘Ultimately, it’s a case of UK car insurance payouts falling far short of rising cover costs, driven by insurer greed.

‘The ABI has tried to blame a non-existent compensation culture, drastically changing the laws to make it harder to claim, while premiums continue to rise.

‘To justify withdrawing the right to recover costs for whiplash claims, insurers promised to reduce premiums by a paltry £35, but even this failed to materialise.’

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