Why has my car insurance become so expensive?

Motorists are feeling the squeeze when it comes to car insurance. According to Consumer Intelligence, premiums surged 67.2% in the 12 months to the end of November 2023. 

But what’s behind the increase? Below, we explain the external factors that make car insurance so expensive, the personal factors that can push your premium higher, and what you can do to bring down the cost of your policy.

What causes car insurance to be expensive?

One of the frustrating elements of getting car insurance is that there are factors outside of your control that’ll make your premium more expensive. 

Rising labour and materials costs

Car insurers aren’t immune from the inflationary pressures that have pushed the price of everything higher in the UK.

For example, between July and September 2023, the ABI reported that the cost of materials rose 16% year-on-year, while the price of labour was up 15%. Costs largely associated with energy, meanwhile, rose 46%.

All of these are common costs associated with repairing a car following a claim. So as prices rise, car insurance providers pass the burden onto consumers. 

Increased cost of second hand cars

While the average cost of a used car in December 2023 had fallen by 5.6% year-on-year, according to Auto Trader’s Retail Price Index, that doesn’t tell the whole story.

Since 2019, the cost of cars from the 2000s has almost doubled. For example, a 2004 Ford Focus cost on average £1,863 in September 2023, marking a near 75% increase from an average price of £1,065.78 four years earlier.  

Increased claims costs

As materials and labour costs increase, and the price of second hand cars remains high, how much providers are required to pay out in claims goes up. So much so, in fact, that between July and September 2023, insurers paid out a record £2.54 billion in all motor insurance claims.

And while, understandably, motorists feel frustrated by the cost of their premium increasing, insurance providers aren’t necessarily benefiting themselves. 

Analysis by consultants EY showed that, in 2022, insurers paid out £1.10 in claims and costs for every £1 they took in premiums. Based on the sector’s record claims costs, that trend is unlikely to change anytime soon. 

Compensation for serious injuries

How much someone is awarded for a personal injury claim is determined by the personal injury discount rate. This is otherwise known as the Ogden rate. There are different rates for England and Wales, Scotland, and Northern Ireland. 

Every time the Ogden rate changes, it directly affects the cost of premiums overall. For example, if insurers have to pay more for personal injury claims because the rate has changed, this cost will be passed onto consumers.

Insurance fraud

In 2022, there were 42,500 fraudulent motor insurance claims in the UK. Which pushes the price of car insurance up for everyone, not just those who committed the crime.

Although it is hard to put an exact figure on how much it adds on average, estimates suggest it is around £50 per policy.

Uninsured drivers

The ABI estimates that 4% of your premium goes to covering the cost of uninsured drivers.

Every time a claim is made for an accident where the at-fault driver doesn’t have insurance, it is settled by the Motor Insurers’ Bureau (MIB). However, as the MIB is funded by insurance providers, part of your premium goes towards these costs.

Insurance premium tax (IPT)

Around 12% of your car insurance premium will be made up of the insurance premium tax. 

The ABI has lobbied the UK government to reduce this tax, in order to help ease the burden on the country’s motorists following the surge in premiums. However, so far this campaign has been unsuccessful.

What personal factors make car insurance more expensive?

Alongside the factors that push prices up for everyone, there are specific data points associated with your personal profile that can make your car insurance more expensive. These include:

• Your age: as a general rule of thumb, the younger you are, the more expensive your car insurance will be
• Your driving history: if you’ve made claims in the past, or have any points or driving convictions on your licence, your premium will go up
• Annual mileage: the more you drive in a year, the more your premium will cost, for the simple reason that the more you’re on the road, the more opportunities you have to get into an accident
• Your job: certain occupations may receive higher car insurance quotes than others. This includes professions, such as a salesperson or social worker, that do a lot of driving as part of their job
• Where you live: car insurance providers have data on every area of the country, including accident and theft statistics. So, if you live in an area where those are higher, your car insurance will be more expensive
• The car you drive: each make and model belongs to a car insurance group that will play a role in determining your premium. The bigger your car’s engine, for example, the more you’ll typically pay
• How you store your car overnight: if you park your car on the road overnight, rather than in a garage or on a private driveway, your car insurance will be more expensive 
• Modifications: if you’ve made certain modifications to your car, such as a new exhaust, it can cause your premium to cost more money

Does auto-renewing my policy make car insurance more expensive?

Although Financial Conduct Authority (FCA) rules introduced in January 2022 mean that a car insurance provider can’t charge a renewing customer more than an equivalent new customer for the same policy, auto-renewing can still be costly.

For example, if you have made a claim on that policy, or have got points on your licence in the interim, your premium will increase. 

Similarly, your circumstances may have changed. You might have moved house, bought a new car, or now drive more miles because of a new job – all of which can give you a higher premium.

And, as mentioned above, inflationary pressures can push car insurance renewals up for everyone. 

Unfortunately, providers may also be using loopholes in the new regulations to charge loyal consumers more than new customers.

This is why you should always shop around before renewing your car insurance, whether that’s by using a price comparison website or going to a provider directly. You may not only be able to find a cheaper deal, but one that is better suited to your driving needs.

Why is car insurance more expensive for new and young drivers?

Car insurance for new drivers, as well as those under the age of 25, is more expensive than for older motorists with years of experience on the UK’s roads. 

This is because the younger you are, and the less experience you have driving, the more likely you are to make a claim. Not only that, the claim you make is more likely to cost more than an older driver.

The ABI reports that, while young drivers aged between 17 and 24 only make up 7% of UK motorists, they account for almost a quarter of all fatal collisions.

New and young drivers, then, can expect dramatically higher premiums. For example, between October and December 2023, the cost of car insurance for 17 to 19 year olds was more than 160% higher than for drivers aged 50 to 64, based on annual comprehensive policies purchased through MoneySuperMarket. 

How can I cut the cost of my car insurance premium?

There are steps you can take to try and combat the increase in car insurance premiums. These include:

• Avoiding auto-renewal: even if you end up with the same car insurance provider, avoiding automatically renewing your policy can immediately start to save you money
• Comparing car insurance quotes: looking at a range of quotes from a variety of providers can help you find the cheapest car insurance available for your profile
• Building your no-claims bonus: every year you fail to make a claim, you can receive a discount on your next car insurance policy. So it sometimes might be worth paying for a small repair out of your own pocket, rather than making a claim, in order to build and protect this bonus
• Getting low-mileage car insurance: make sure you don’t overestimate the amount of miles you drive in a year. And, if you drive less than the average annual mileage in the UK, you could be eligible for a cheaper low-mileage insurance policy
• Considering telematics insurance: also known as black box insurance, a telematics policy sees an electronic device installed in your car. This will track your driving habits and, hopefully, prove to insurance providers that you are a safe pair of hands behind the wheel. This can then help bring future premiums down in cost
• Increasing your voluntary excess: the more you volunteer to pay when an accident happens, the cheaper your premium will be. However, only agree to a voluntary excess you can realistically afford in the event of an accident
• Limiting optional extras: add-ons, such as breakdown cover and motor legal protection, can push up the cost of your insurance
• Paying annually: most of the time it is cheaper, if you can, to pay for your car insurance upfront rather than in monthly instalments
• Adding a named driver: newer, younger and less experienced drivers can add a named driver with more experience, such as a partner or parent, in order to potentially bring down the cost of their premium
• Making the right modifications: while some modifications cause your premium to increase, adding safety features such as collision warning technology can cause it to fall