Inflation rears its head in motor insurance market

• The cost of car insurance has increased 7.8% since the start of the year after new rules came in to tackle the practice of “price walking”
• Whilst January is the culprit for the biggest one-month increase, underlying inflation is now causing a further uptick in the average premium

New rules that came into force in January to tackle the practice of “price walking” saw prices shoot up in January, but premiums now appear to be on a more unpredictable path as insurers plot their new pricing strategies, according to the latest motor insurance price index published by Consumer Intelligence this month.

Over the first five months of 2022, the average motor insurance premium has increased 7.8%, with the typical policy now costing £786.

“Whilst we continue to see varied strategies at a brand level, we are starting to see signs of inflation taking hold with a further uptick in premiums for new business customers. As we predicted earlier this year, this was inevitable considering the enormous upward pressure from claims costs and repairs. It was only a matter of time until we saw this come through at a market level,” says Insurance Insights Manager, Mike Miskelly.

He continues, “Right now the market is behaving in two very different ways – prices are going up for new business customers and for renewing customers, they are going down. Making a claim, moving house, buying a new car or mid-term adjustments could be the deciding factor in which side of the coin a customer will fall. Customers forced back out into the new business market right now may feel frustrated by the quotes they get.”

Long-term view

Average overall premiums have increased 20.3% since October 2013 when Consumer Intelligence first started collecting data.

Premiums today are now around 8% lower than pre-COVID levels, and 12.4% off their pricing peak in September 2017.

Age differences

Older drivers continue to be stung by higher car insurance premiums – with increases of 9.4% over the past year for drivers aged over 50, bringing their average annual premium to £414.

For motorists aged 25-49, prices have risen by 6.4% over the same 12-month period – with the annual cost of car insurance now £592.

Meanwhile, younger drivers aged under 25 – who are statistically more likely to have an accident – typically now pay £1,669 for their car insurance, a fall of 3.2% in the last 12 months.

Telematics

There has been a slight fall in the number of telematics products that make up the five cheapest insurance quotes for a typical motorist.

Telematics policies base your premiums on how you drive, with insurance becoming cheaper for safer drivers.

27% of the five cheapest insurance quotes now come from telematics firms, down from a record high of 30% in January 2022.

“We’re seeing an influx of ‘essentials’ products in the market right now. On the whole, these products are stripped back, cheaper versions of existing products which are competing with telematics products for the top spots on the PCWs. In some cases, essentials products actually provide less value than a telematics products, but the minimal price differentiation and hassle of installing a ‘black box’ could be deterring people from choosing telematics over a traditional policy.”

Regional differences

Scottish drivers have recorded the biggest increases to their car insurance in the last 12 months – of 8.4%. The South West (7.8%), Wales (7.3%) and the South East (6.7%) were also notable risers.

Out of all the regions, London saw the smallest uptick of just 1.9%, although drivers in the capital continue to pay the most for their car insurance at £1,296 for an average annual policy. The South West (£482) is now the cheapest UK region to buy car insurance.

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