Is the cost of car insurance rising because inflation?

cost of car insurance

It seems there’s little that isn’t affected by the rising inflation that is prompting the cost-of-living crisis. And like many other things, the cost of car insurance premiums are rising too.

Is the cost of car insurance going up?

Car insurance prices have already rocketed. According to the government’s Office for National Statistics, the cost of motor insurance went up by 43.1% between June 2022 and June 2023.

The average annual price for a premium rose to £478 over the first three months of 2023, the Association of British Insurers (ABI) said. That’s 16% more expensive than over the same period last year.

But customers of insurers Direct Line and Saga have been complaining about 50 to 75% price rises over last year.

Why is insurance going up?

There are a couple of reasons: one is the cost of living. The other is a new regulation from the Financial Conduct Authority. The FCA changed the rules around policy renewals, preventing insurers from offering hefty discounts to new customers.

That resulted in the average premium paid for a new policy in the second quarter of 2022 being £129 higher than for a renewed policy.

What about the price of cars?

You pay insurance primarily either to replace a car that’s been written off because of a crash or one that’s been stolen. Two things are having an impact on this. First there’s the semi-conductor crisis. This is having an impact on the supply of new cars and replacement electronic parts.

And spare parts?

Meanwhile the shortage of new cars has resulted in an increase in the price of used models. These have gone up 30% over the last year, according to Auto Trader. This means that when an insurer pays out on a stolen or crashed car, it’s having to pay a higher price because the car is worth more.

When insurers pay out on repairing crashed cars, they’re also having to spend more money. This is because the price of spare parts has increased and even components such as paint are going up in price.

Repairs are also being delayed so customers are having to spend longer driving courtesy cars around. In turn, that means added cost to the insurer.

In addition, cars are getting more complex to repair so again, repair times are going up, which means more expense. And there’s a shortage of skilled labour in the vehicle repair sector. This is resulting in garages having to pay more money to attract staff and therefore putting their prices up.

Will premiums go up further?

It looks that way as long as inflation is running rampant. The cost of having cars repaired isn’t going to get any cheaper. In fact parts will only get more expensive as suppliers pass their increased costs onto customers.

In addition, the price of used cars continues to rise. The introduction of ULEZ has seen the second-hand price of some models increasing by up to 45% this year.

The result? The cost of insurance is going to continue rising.

Who will suffer the most?

Young drivers will be most vulnerable to increases in the cost of car insurance. ComparetheMarket said that the 17-19 year-old age group has seen the biggest jump in prices, followed by the 25-29 year-old category.

What’s the answer?

Do your best to lower your premiums. We’ve got a handy blog here that will help. And remember to always shop around when your existing cover is coming to an end.

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