UK car insurance costs set for further rise in 2024

Motor insurance prices in the UK are set to continue rising this year and next, according to a new sector forecast, as concerns grow that people could be forced to cut back on what is a key financial safety net.

Consultancy Oxbow Partners said it expected the cost of motor insurance to rise 14 per cent overall this year, and 6 per cent in 2024, before flattening in 2025. Prices increased faster than expected in the first quarter.

Paul De’Ath, head of market intelligence at Oxbow Partners, said there was “definitely some momentum still” in the insurance pricing upswing, driven by inflation in claims costs.

The cost of insuring a car is already increasing at its fastest rate in a decade, as big providers such as Admiral and Direct Line respond to the rising value of payouts by ratcheting up their rates.

The average motor insurance policy in the UK was £478 in the first quarter of the year, up 16 per cent year-on-year to the highest level recorded since the end of 2019, according to figures from the Association of British Insurers.

Rising insurance prices have fuelled concerns among regulators and customer groups that people will cancel their insurance cover to save money as the cost of living crisis drags on.

“If motor insurance premiums continue to rise at the rate we’ve seen over the last 12 months, we will likely see a ripple effect of customers cancelling, modifying their coverage, or opting for policies with inadequate coverage and high excesses, ultimately putting themselves at greater risk,” said Catherine Carey, head of consumer strategy at consultancy Consumer Intelligence.

Motor insurance prices have been rebounding since a recent low during the Covid pandemic when roads were silent and accident rates dropped. But the rising cost of car parts, labour and other expenses for insurers have since eroded insurers’ margins and forced them to push prices yet higher. 

At the House of Commons’ Treasury committee last week, insurance executives denied that they were making excessive profits, given that insurance prices are rising faster than broader headline inflation, which ran at 8.7 per cent in April.

“We are not profiteering, we are catching up with the very high inflation [in claims costs],” said Cristina Nestares, Admiral’s UK chief executive.

Industry data published last week said the amount insurers spent on vehicle repairs had jumped by a third over the past year, and rising costs have triggered profit warnings for some insurers.

Labour MP Dame Angela Eagle highlighted FCA data showing that some areas of insurance have very low payout ratios, a measure of claims as a proportion of premiums. “Surely you could put the price down a bit,” she told industry representatives.

A separate recent index, from comparison platform Confused.com and broker Willis Towers Watson, showed that quoted motor insurance prices were rising at the fastest rate in a decade. It highlighted inner London, where average insurance premiums cost more than £1,000. 

Oxbow predicts insurers will break even on their underwriting next year, as prices catch up with inflationary effects. But, De’Ath said, the “worst-case scenario is inflation is much more embedded than expected and those claims costs keep rising”.