Record-high car insurance as average leaps by £125 compared to last year

The average price paid for motor insurance leapt by 29 percent – or £125 annually – to a record high in the third quarter of this year, according to data from the Association of British Insurers (ABI).

According to the ABI, the average motor insurance price paid from July to September 2023 was £561, marking the highest level since the organisation began keeping records in 2012.

During the third quarter of 2022, the average price paid was £436. The ABI attributed the increase to rising labour and material costs, which contributed to higher underlying expenses.

It also calculated that around £60 of the average premium is due to insurance premium tax (IPT). IPT is a tax on insurers, which in practice is passed on to customers through the cost of premiums.

The ABI is calling for IPT to be reduced in Chancellor Jeremy Hunt’s autumn statement later this month.

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The ABI’s motor premium tracker analyses nearly 28 million policies sold over the past year. It is based on actual prices paid, rather than quoted prices. The 29 percent jump is way above the general rate of inflation, which rose by 6.7 percent in the 12 months to September 2023, according to Office for National Statistics (ONS) figures.

The association highlighted delays in repair and supply chains, the rising cost of parts and materials and increasingly sophisticated car technology as factors adding to insurers’ own cost pressures, which in turn feed into the prices paid by customers for insurance premiums. Rising energy bills are also said to be impacting costs.

Mervyn Skeet, ABI director of general insurance policy, commented: “We appreciate that another quarter of increased motor insurance premiums will be concerning for households who are already grappling with rising costs in other areas.

“Insurers continue to do all they can to keep motor insurance as competitively priced as possible, despite facing substantial increases in costs outside of their control.”

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However, a skilled technician shortage is also increasing claim costs further as repairs are delayed. According to the ABI, insurers have reported that the cost of paint has increased by 16 percent and spare part costs increased by 11 percent over the past year.

The association is working with other industry bodies such as the Society of Motor Manufacturers and Traders (SMMT) and Thatcham Research to understand areas of shared concern between manufacturers and insurers.

Mr Skeet said: “We’re bringing together representatives from across the sector to discuss issues such as vehicle safety and security.”

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However, he added: “The Government could help drivers with an immediate reduction in costs by reducing insurance premium tax.

“If your insurance is coming up for renewal, we would always recommend shopping around and finding the best policy for you. But be sure to choose a policy that meets your needs, not just based on price.

“If you’re struggling to pay your premium, speak to your insurer who may be able to help.”

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