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Why has car insurance gone up in 2023 and 2024?

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December 14, 2023
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If you’re looking to renew your insurance, you might be facing higher costs than usual. But why is this, especially when you haven’t claimed on your insurance? We explore the factors that are potentially leading to rising car insurance premiums in 2023 and 2024.

Are insurance premiums really rising?

According to ABI, insurance premiums are indeed up year on year, and they’ve been rising steadily over the last few quarters.

The study shows that, in Q4 2022, the average price paid on renewal rose 8%, and the average price paid for a new policy in the fourth quarter of 2022 rose by 7% from the previous quarter. Further research suggests that this trend has continued into 2023, with prices up 21% in Q2 2023 compared to Q2 2022.

So why is this happening? In order to understand this, you first need to know how insurance premiums are calculated.

How are insurance premiums calculated?

Person using a calculator on their phone

Essentially, insurers calculate premiums by estimating the risk involved, and ensuring that the premiums they set for individuals cover the claims of those who need it.

If you take a look at your insurance policy documents, you’ll probably notice that your insurance covers quite an array of services, all of which need to be covered by the policies that are in place. Your policy might include:

  • Unlimited third party personal injury cover
  • Up to £20m of third party property damage
  • Cover for own vehicle accidental damage
  • Cover for vehicle theft and fire
  • … and many more

What’s causing the increase in insurance premiums?

Premiums have increased recently because of high inflation. Ultimately, the insurance provider still needs to cover all the costs involved when someone makes a claim on their insurance, but inflation causes these costs to become more expensive.

This means that the costs involved with repairing and sourcing parts for your vehicle, such as replacing its battery or fixing electrical problems, are higher.

Other costs, such as legal fees or hiring a replacement vehicle while your own is getting repaired, have also increased as a result of inflation.

This has meant insurers have had to raise premiums so they can cover the costs of the insured losses.

Why has my insurance increased above inflation?

Person looking at inflation graph on phone while drinking coffee

Unfortunately, a lot of the costs involved with paying out for claims have increased above inflation.

ABI’s research shows that average vehicle repair costs have increased by 46% in Q2 2023 compared to Q2 2022, and the costs involved with providing replacement cars while vehicles are being repaired have increased by 52% in the same period. These two examples show that costs have increased far higher than inflation rates; the peak inflation rate was 11.1% in October 2022.

Although car insurance premiums are meant to cover the cost of claims, ABI’s recent research shows that claim payouts have increased at a faster rate – 29% year on year – than the average insurance premium in Q2 2023 (21% year on year).

Can we expect insurance premiums to decrease now that inflation rates are coming down?

Person talking on the phone outside

Not necessarily. The price increases outlined above are unlikely to fall. Although there has been a decrease in the inflation rate, this doesn’t mean that the prices of goods and services are falling; it just means that they’re increasing more slowly.

How do premiums compare to pre-coronavirus levels?

Although inflation has increased each year since 2019, you might be surprised to learn that the average premium was lower in the first quarter of 2023 compared to the Q4 2019. Whereas in Q4 2019, the average premium was £483, in Q1 2023, the average premium was £478.

Are there any other factors that are affecting insurance premiums?

Yes, there are a number of other factors that are increasing insurance premiums.

Over the last couple of years, there have been a number of supply chain issues, meaning that some car parts are taking longer to source. These delays have a knock-on effect by increasing costs for the insurer. For instance, if a part cannot be sourced for a few days, the vehicle cannot be repaired, which means that insurers must pay for a customer’s courtesy car for longer.

In addition to this, in general, prices for repairs have increased as technology has improved. This is because newer vehicles are more sophisticated and often include cameras, sensors and screens that are more expensive to repair and replace than older vehicle parts.

I’m taking car insurance out for the first time and it’s really expensive. Has it always been this way?

Concerned woman on the phone

There are a number of factors involved with calculating risk. If you’re a new driver – especially one in your late teens or early twenties – you might find that your insurance premiums are quite high. This is generally because you haven’t built up a no claims bonus (NCB), which essentially acts as “proof” that you’re a relatively low risk to insurance providers.

In addition to this, from the 1st January 2022, the Financial Conduct Authority (FCA) banned insurers from providing new drivers with discounted policies as the additional cost was often passed onto loyal customers who had stayed with their insurance provider for a number of years.

This means that cover for your first year or two of driving might be more expensive than individuals who were in your position a few years ago.

Why are Land Rovers so expensive to insure?

As well as the factors explained above, the cost of Land Rover insurance has increased significantly over the last couple of years. This is mainly due to a recent increase in thefts of higher-end vehicles such as Land Rovers – particularly in urban areas.

To account for the additional risk involved, insurance companies have increased the premiums involved with insuring these vehicles. In some cases, insurers are refusing to cover Land Rovers entirely.

Read more about why Range Rover insurance is so expensive.

Why are electric cars so expensive to insure?

Woman plugging electric vehicle into wall socket

According to a study conducted by Thatcham Research, battery electric vehicle (BEV) claims are around 25.5% more expensive than their internal combustion engine (ICE) counterparts and take around 14% longer to repair, which is likely contributing to the increased cost of electric car insurance. Other factors involved include a higher claim rate for EVs than ICE vehicles; this is usually 25% higher for EVs.

So what’s contributing to these factors, and why is EV insurance so expensive? This is due to a number of factors, including the limited repairability of EVs, a lack of training in EV repair for mechanics, higher component costs, and the increased fire risks involved after a crash.

Lack of training in place for EV repairs

Mechanic working under the bonnet of car

Research from the Institute of the Motor Industry (IMI) revealed that, as of 2020, only 6.5% of the current motor mechanic workforce is qualified to service EVs, and this skills gap is likely to continue into 2030 if it isn’t addressed.

Thatcham Research’s study shows that Vehicle Damage Assessors (VDAs) often lack the necessary skills, training and tools to properly assess EVs because of their technical complexity. High voltage (HV) battery damage in particular is often misdiagnosed. This can cause more EVs to be incorrectly evaluated or written off, which in turn increases electric car insurance costs.

Low repairability of EVs and high component costs

The most significant reason why BEVs are more expensive to repair is due to the low repairability of HV batteries used in EVs.

HV batteries are extremely expensive to replace; often they will cost more than the average used value of the vehicle they’re powering, which can mean that the vehicle is cheaper to write off than repair. What’s more, basic garage repairs for EVs can cost up to 400% more for EVs than their combustion engine counterparts. These costs must be accounted for and reflected in insurance premiums to cover the risks involved with the vehicle.

More risks involved after a crash

When BEVs are involved in a crash, this can damage the vehicle’s HV battery, which increases the risk of fire breaking out. As a result, BEVs with potentially damaged HV batteries must be monitored for 48 hours after the incident in an outside quarantined area 15 metres from other nearby objects (including other vehicles). This means that EVs with suspected HV battery issues take up more space in garages than ICE vehicles, which further increases the costs involved with diagnosis and repair.

How can I reduce my insurance premiums?

Person on the phone looking happy

It’s usually better to focus on ensuring your insurance policy provides adequate cover for your needs. Focusing on price could mean that your policy doesn’t include cover for things that are important to you, meaning that you end up having to pay out of pocket for these extra aspects when you need to make a claim.

That being said, we have a number of tips for those who want to save on their insurance. Read our blog of more than 20 simple steps to reduce your car insurance premiums and save money.

Get tailored car insurance from Adrian Flux

If you’re in need of car insurance now, we would suggest getting a quote from a specialist insurance broker like us. We compare quotes from 30 insurers and make sure we know your exact needs so you don’t waste money and only pay for the cover you require.

As a specialist insurance broker, we are also able to cover a wide range of vehicles, from standard cars to classics, imports and modified vehicles. Call us on 0800 369 8590 for a quote, or book a callback for a quote.

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