The Association of British Insurers (ABI) has today (27 February) published a roadmap to slamming the brakes on soaring motor cover costs, outlining 10 steps that industry, governments or regulators could initiate or improve.
Why are car insurance costs rising?
Motorists paid an average of £543 in 2023, up from £434 in 2022. The latest ABI figures showed the average premium in the last three months of 2023 jumped 12% on the previous quarter - up from £562 to £627. The current average premium is 34% higher compared to the final quarter of 2022, when it was £470.
While technological advancements in new vehicles have helped push up the cost of repairs and replacements, inflation is the main reason why premiums have gone up over the last year.
ABI data shows the cost of repairs jumped 32% in the third quarter of 2023. Other cost pressures reported by insurers during the same period include longer repair times - this drove up the cost of providing replacement vehicles by 47%. The cost to replace written-off vehicles has also increased as the average price of new cars has risen 43% over five years.
All of these pressures mean insurers are spending more on claims and costs than they are collecting in premiums. Professional services firm EY estimates that in 2022, for every £1 paid in premiums, insurers incurred £1.11 in claims and expenses. They now estimate that this figure rose to £1.14 in 2023.
Find out more:How will the ABI's action plan benefit drivers?
While CPI inflation has fallen considerably since a peak of 11.1% in October 2022, its current level of 4% is double the Bank of England's 2% target.
The bleak picture has prompted the ABI to put together a 10-point plan to end the recent wave of premium price spikes.
The step most likely to have a direct impact on consumers in the near future is the promise of more available data on which vehicles are most expensive to insure. The ABI hopes this will help people make more informed decisions when buying a new car.
Young drivers could also be hit with the introduction of 'graduated driving licenses' to improve road safety and reduce risk-associated costs. These require new motorists to pass in stages rather than by taking one big test.
Other steps require more coordinated action
Many of the steps included in the roadmap are less straightforward and rely on other parties, such as the government or law enforcement, to get on board.
For example, the ABI would like to see more action taken by the industry to tackle fraud and uninsured driving - something which pushes up premiums for honest drivers. ABI figures last summer showed the average value of car insurance fraud was £1.1bn in 2022.
Other ways the ABI would like to improve the industry, and reduce the knock-on effect some issues have on premium costs, include campaigning for better road and car safety measures, reforming and rethinking how injury claims are handled, and working with the government, manufacturers and independent mechanics to improve the repair sector.
There are also calls for the government to lower Insurance Premium Tax (IPT), which the ABI claims adds £67 to the average policy.
Find out more:What doesn't the plan include?
Unfortunately, the ABI's current plan doesn't include direct action to tackle the issue of premium finance schemes, which allow consumers to pay monthly instead of in one go.
However, the ABI confirms it is in discussions with the FCA and its members on possible industry action and is also considering how it can work with other organisations not in its remit to make improvements.
How to reduce the cost of car insurance
The ABI's plan is a step in the right direction, but there are some simple ways you can reduce the cost of car insurance yourself.
Shop around:Go annual:Renew early:Keeping mileage down:Watch out for occupation: Haggle:Which? Limited is registered in England and Wales to 2 Marylebone Road, London NW1 4DF, company number 00677665 and is an Introducer Appointed Representative of the following: 1. Inspop.com Ltd for the introduction of non-investment motor, home, travel, pet, van and temporary insurance products (FRN 610689). Inspop.com Ltd is authorised and regulated by the Financial Conduct Authority (FCA) to provide advice and arrange non-investment motor, home, travel and pet insurance products (FRN310635) and is registered in England and Wales to Greyfriars House, Greyfriars Road, Cardiff, South Wales, CF10 3AL, company number 03857130. Confused.com is a trading name of Inspop.com Ltd. 2. LifeSearch Partners Limited (FRN 656479), for the introduction of Pure Protection Contracts, who are authorised and regulated by the FCA to provide advice and arrange Pure Protection Contracts. LifeSearch Partners Ltd is registered in England and Wales to 3000a Parkway, Whiteley, Hampshire, PO15 7FX, company number 03412386. 3.Which? are an Introducer Appointer Representative of Optimise Media Limited (FRN 313408), for the introduction of HSBC Group, who are authorised and regulated by the Financial Conduct Authority to provide credit brokering activity. Optimise Media is registered in England and Wales to Exchange Street Buildings, 35-37 Exchange Street, Norwich, England, NR2 1DP and company number 04455319. We do not make, nor do we seek to make, any recommendations on financial products or services that are regulated by the FCA, as we’re not regulated or authorised by the FCA to advise you in this way. In some cases, however, we have included links to regulated brands or providers with whom we have a commercial relationship and, if you choose to, you can buy a product from our commercial partners. If you go ahead and buy a product using our link, we will receive a commission to help fund our not-for-profit mission and our campaigns work as a champion for the UK consumer.
source https://www.which.co.uk/news/article/new-plan-to-tackle-soaring-car-insurance-premiums-will-it-work-aX7yR0B6PMIy