Why are car insurance premiums on the rise?

The cost of car insurance premiums are set to rise by 14% in 2023 and prices will not stabilise until 2025. This is the assessment of consultancy firm Oxbow Partners in a new report they have just published. So what’s behind this trend and how is car insurance priced in the first place? We explain all.

Why are car insurance prices set to rise?

In one word – inflation. That same word we keep hearing on the news every day which essentially means ‘price increases’. In this instance it is because the cost of having vehicles repaired has increased. The biggest factor underneath all of this is the stratospheric rise in energy prices we’ve seen. It takes a lot of energy to extract and process materials to make replacement car parts. It also takes a lot of energy to run a garage to fix vehicles. So garages and repair shops have put up the price of their services and the parts they sell.

Car insurance claim car being repaired

Why will car insurance prices increase until 2025?

Insurers claim they are increasing prices to ‘catch up with inflation’. This is because a standard car insurance policy price is agreed and fixed for a year in advance. Therefore the price of many of those policies coming to an end now will not have factored in the extraordinary inflation levels seen throughout 2022 and into 2023. Many accident payouts over the last year have cost insurers more than they had expected.

This is why insurance bosses are justifying the 14% increase in prices now, to make up for the losses their firms have suffered due to the cost of accident repairs over the last year.

Although inflation is set to fall to 5% by the end of this year according to the Bank Of England, this still means prices are rising and not falling. The Bank of England doesn’t expect inflation to drop to its target level of 2% until the end of 2024. If this happens then prices of insurance and other goods and services will not stop increasing significantly until 2025.

Expected impacts of more expensive car insurance?

There are concerns from the insurance regulator about what measures drivers will take if car insurance becomes unaffordable. The Financial Conduct Authority (FCA) is already seeing how the cost of living crisis is impoverishing a large proportion of society. Given many of us need to drive to get to work it is concerned that some could take desperate action by not insuring their car or accepting cheaper cover that offers less protection. The FCA has already spent the last few years investigating motor insurance pricing and implementing new rules around the price of renewals. See our blog Is your car insurance renewal compliant with FCA rules.

What else determines the price of car insurance?

There are many pieces of information that insurers request to calculate the price of your car insurance premium. The price depends on the answer to one important two part question: What is the chance of you making a claim, and how big is the claim likely to be?

Here are the main sources of data insurers use to determine how risky a prospect you and your car are and therefore how much your insurance quote will be:

  • Your profession or occupation
  • Your address
  • Your annual mileage
  • How much voluntary excess you’re willing to pay
  • The make and model of your vehicle
  • Whether you’ve modified your car
  • Where you park your car overnight
  • Your age
  • Medical conditions that impact on your ability to drive
  • Your driving and accident history, including any no-claims bonus/discounts
  • Whether or not you’ve added any named drivers onto your policy
  • The type of cover you’re taking out.

How much is it to insure a car?

According to the Association of British Insurers (ABI), the average cost to insure a vehicle was £478 in the first 3 months of 2023. But this figure can fluctuate considerably. For example: new drivers will be required to pay on average £1,400 a year to insure their car.

How do I know how much my car insurance will be?

Comparison websites

Often the easiest way to get a competitive quote is to use one of the car insurance comparison websites such as GoCompare, Compare the Market and MoneySuperMarket. They will ask you questions on many of the areas covered above and then aggregate quotes from lots of different insurers. This saves you having to answer the same sorts of questions again and again on each insurer’s website to get quotes.

Insurance group numbers

But you can get a rough idea of how expensive a car is to insure by looking at the insurance group it has been categorised into. This only takes into account the car itself. So risk factors relating to the car such as: it’s speed; acceleration; safety rating; security features; and industry data detailing how many claims there were linked to the model.

There are 50 vehicle insurance groups. Group 1 represents the least risky vehicles to insure and therefore the cheapest. Group 50 the most expensive.

Total Car Check’s free initial check will tell you the insurance group of any GB registered car. Simply enter the car’s registration number on our website or app and we will tell you what insurance group it is registered under.

Insurance group letters

There are 6 letters which provide a security rating for the vehicle and can also have a bearing on what group number the car is positioned into. These letters appear after the insurance group number. This is what the letters mean:

– The car meets all security requirements for its group.

– The car doesn’t meet the requirements for its insurance group and has therefore been placed in a higher insurance group.

– The car has exceeded security requirements for its group and has therefore been placed in a lower insurance group.

– Data for the car is only provisional. P is used when the data used by the rating system was incomplete when the car was launched.

The car has unacceptable levels of security. The car will still be insured but your insurer may ask for security features to be added or upgraded.

–The car has been imported.

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