Industry data has revealed a 1% increase in the average price paid for comprehensive motor insurance in the first quarter of 2022. The latest tracker issued by the Association of British Insurers (ABI) showed that the average policy now costs £635, despite a record-high average claim of £4,800.
According to the ABI, this disparity between rising claims and relatively stable premiums indicates that insurers are absorbing additional costs rather than passing them on to customers. However, the average policy is still 33% higher than it was in the same period last year, with premiums reaching record levels in 2023 due to increased costs and claims.
The ABI reported a 23% hike in premiums compared to the previous year, with a total of £9.9bn paid out in claims. This is the highest annual claims figure since the ABI began collecting data in 2013.
The rise in premiums can be attributed to various factors, including a 16% increase in the cost of paint and a double-digit rise in spare parts. Additionally, the price of energy has driven up other bills by 46%. The ABI also noted that delays in repair and supply chains, as well as the rising costs of car technology, have contributed to the overall increase in premiums.
Furthermore, the ABI warned that the rise in uninsured drivers may also be a factor in the increase in premiums. Many individuals may not have taken out insurance due to financial strain caused by the current cost of living crisis.
The 1% rise in premiums may also be a result of growing regulatory pressure on the insurance industry. In March, the Financial Conduct Authority (FCA) issued a warning to insurers over the values placed on written-off and stolen cars. The FCA expressed concern that customers were only receiving fair settlements when they complained.
There have also been accusations that drivers who cannot afford to pay for annual insurance in one lump sum are being charged high levels of interest. A recent report by consumer group Which? found that the average rate of interest for monthly payments was 23.37%, with some providers charging almost 40%. Which? has called for action from the FCA to address this issue.
In response to the latest tracker data, Mervyn Skeet, Director of General Insurance Policy at the ABI, stated, “We understand that car insurance costs are putting pressure on household finances. These figures show how competitive the motor market is, with insurers absorbing significant cost rises but keeping prices relatively stable.”
However, Rocio Concha, Director of Policy and Advocacy at Which?, expressed concern over the high cost of premiums, stating, “While it’s encouraging to see the price of premiums steadying, they still remain eye-wateringly high and prohibitively expensive for many drivers.” Concha also called for the FCA to address the issue of high interest rates on monthly insurance payments.
Overall, the ABI maintains that its members are taking steps to address concerns and keep the motor market competitive. As the industry continues to navigate various challenges, it remains to be seen how premiums will be affected in the coming months.
