This comes from the ABI’s Motor Insurance Premium Tracker, covering the fourth quarter of 2023. The tracker is the most comprehensive in the UK, analysing nearly 28 million policies sold a year. It’s also the only collection that is based on the price customers pay for their cover rather than what they are quoted (which typically delivers higher averages).
It shows that between 1 October and 31 December 2023:
The average premium paid for private motor insurance was £627, up 12% on the £562 of the previous quarter.
The current average premium is 34% higher compared to Q4 2022, when it was £470.
When looking at annual averages, motor premiums were 25% more expensive in 2023 than in 2022 (£543 vs £434).
Cost pressures continue but insurers focused on action needed to support motorists
While like-for-like Q4 figures for claims costs are yet to be finalised, previous quarterly and annual claims data has shown a clear picture of spiking costs for insurers. Payouts for vehicle thefts rose 35% in Q3 2023 (vs Q3 2022), longer repair times drove up the cost of providing replacement vehicles by 47% in the same period and the cost to replace written-off vehicles has increased as the average costs of new cars rise (up 43% over a five-year period).
However, the largest single factor is repair costs, which jumped 32% in Q3 to £1.6bn of the total £2.54bn. This reflects a mixture of cost of labour, energy and also the fact that vehicles are becoming more sophisticated, with the likes of electric vehicles requiring ever more specialist expertise to repair. Early research suggests that electric vehicles are approximately 25% more expensive to repair than their petrol equivalents and take 14% longer to fix.
The end result is that insurers are spending more on claims and costs than they are collecting in premiums. Analysts at EY estimate that in 2022 for every £1 motor insurers received in premiums, they paid out £1.11 in claims and operating costs. EY also forecasts that in 2023, insurers will have paid out £1.14 in claims and operating costs for every £1 received in premiums.
But the industry is aware of the need for action.
Mervyn Skeet, the ABI’s Director of General Insurance Policy, said: “We’re acutely aware of the impact that rising motor insurance premiums continue to have on motorists. Rising repair costs and other factors outside of insurers’ control mean there is no single action that could bring down premiums. However, we are determined to do all we can to put the brake on.
“We are working with our members to understand what actions can be taken to help motorists manage costs. The cost of paying monthly (premium finance) is one of a number of topics we continue to discuss with our members and the Financial Conduct Authority (FCA). We’ve also been very clear, and continue to underline, that cutting Insurance Premium Tax would provide immediate relief for stretched consumers. We will be saying more, as we can, on other steps we will take in the coming weeks.”
Insurance Premium Tax (12%) currently adds £67 to the average motor premium.
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