UK car insurance rates are set to continue to rise this year and next, according to new sector forecasts, as concerns grow that people may have to cut back on what is a key financial safety net.
Advisory firm Oxbow Partners said it expects the cost of auto insurance to rise 14 percent overall this year, and 6 percent in 2024, before flattening in 2025. Prices rose faster than expected in the first quarter.
There is “definitely some momentum” in rising insurance rates, driven by inflation in claims costs, said Paul Diath, head of market intelligence at Oxbow Partners.
The cost of car insurance is already increasing at its fastest rate in a decade, as major providers like Admiral and Direct Line respond to the growing value of payments by increasing their rates.
The average UK car insurance policy 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 rates have sparked fears among regulators and customer groups that people will cancel their insurance cover to save money as the cost of living crisis continues.
“If auto insurance premiums continue to rise at the rate we have seen over the past 12 months, we will likely see a ripple effect of customers canceling, adjusting their coverage, or choosing policies with inadequate coverage and high excesses, putting them in the bottom line,” said Kathryn Carey, chief consumer strategy at Consumer Intelligence Consulting “Greater Risks”.
Car insurance rates have rebounded since their recent low during the covid pandemic when the roads were silent and accident rates were down. But the rising cost of auto parts, labor and other expenses for insurers has since eroded insurance companies’ margins and forced them to push rates higher.
At the House of Commons Treasury Committee last week, insurance executives denied they were making excessive profits, given that insurance rates are rising faster than broader headline inflation, which hit 8.7 per cent in April.
We’re not winning, we’re catching up to very high inflation (in claims costs),” said Christina Nestris, chief executive of Admiral UK.
Industry data published last week said the amount insurers spent on vehicle repairs jumped by a third over the past year, and rising costs have prompted profit warnings for some insurers.
Labor MP Angela Eagle highlighted FCA data which shows some areas of insurance have very low payout ratios, which is a measure of claims as a proportion of premiums. “Sure, you can lower the price a little bit,” she told industry representatives.
A separate recent index, from comparison platform Confused.com and broker Willis Towers Watson, showed that quoted auto insurance rates were rising at the fastest rate in a decade. It has highlighted central London, where average insurance premiums cost more than £1,000.
Oxbow expects insurers to break even in the next IPO, as prices catch up to inflationary effects. But Diyath said, “The worst case scenario is that much more inflation is built in than expected and these claims costs continue to rise.”