Why car insurance is being driven up

Criminal gangs, rising repair costs and Brexit have all been blamed, but there are ways to limit the pain, writes Noah Eastwood

Driving was once the most efficient way of getting from A to B. But owning a car has rapidly become a financial minefield of punishing costs that is leaving some motorists questioning whether it is even worth having their own set of wheels any more.

Prices for insurance premiums rose by 25pc on average last year, according to the Association of British Insurers ( ABI). Yet a 10-year analysis shows that the cost of cover has skyrocketed by more than 200pc since 2014, according to the RAC Foundation, a think tank.

Research published this week by comparison site Confused.com showed that the average cost of taking out a new car insurance policy in Britain is now £941, having dropped only marginally from a high of £995 at the end of last year.

In recent years, the cost of driving has soared at a faster rate than train travel, according to analysis of Office for National Statistics (ONS) data by the RAC Foundation.

Many motorists have found the rises in their insurance mystifying. This newspaper has heard from readers who say their insurers have suddenly quoted prices hundreds of pounds above what they have paid for the same car for years.

Dame Harriett Baldwin, chairman of the Treasury select committee, said she experienced her own “horror story” after receiving a quote six times her usual premium cost last year, despite having made no claims.

“In rural areas like west Worcestershire most people rely on their cars. I was deeply shocked last year to find my car insurance premium had leapt from £ 500 to £ 900. This year I was quoted £3,000 to renew and, no, I haven’t had any claims.”

Even drivers with spotless records and long- standing zero- claims bonuses have complained of being caught out.

Nick Lyes, of IAM RoadSmart, which certifies additional driving proficiency tests, said even its members have complained of higher premiums. He said: “We encourage members to go out and look for the most competitive prices that there are.”

The exact criteria for a cheap premium or an expensive one is kept mostly secret by insurers. An ABI spokesman said last year’s surge in premium prices was “largely driven by above inflation increases in the cost of repairs, thefts and replacement cars, which contributed to insurers paying out a record £9.9bn in claims for the same period.”

A spokesman for Direct Line, one of Britain’s biggest insurers, said: “Pricing across the industry has been rising for some time and is mainly the result of increased claims, inflation and higher repair and labour costs.

Amanda Stretton, a racing driver and motoring expert, blamed Brexit. She said: “The real problem is that it has just caused these huge backlogs in getting parts because we don’t manufacture anything here so everything has to come from abroad, mostly through Europe.”

Since Britain’s exit from the Single Market, many imported vehicle parts are subject to a 30pc duty on their purchase price. It is yet another cost that insurers have to factor in.

It seems there is no shortage of reasons insurers can use to explain away the higher prices. Everything from criminal gangs targeting technical flaws in cars with keyless entry to cash-strapped councils paying less for pothole damage, forcing motorists to claim on their insurance instead, has been suggested to be forcing up premiums.

This week insurance bosses were invited to answer questions from MPs on the Treasury select committee. Only one turned up: Colm Holmes, the chief executive of Allianz. Mr Holmes denied the Financial Conduct Authority’s Consumer Duty rules had been responsible for driving prices up. He said: “For us it’s very, very minimal. It’s not relevant in terms of the cost of insurance.”

Next up was Charlotte Clark, of the ABI, who said that the banning of so-called loyalty penalties in 2022, which ended the practice of charging new customers less than existing ones, had not led to price surges.

The other major insurers all wrote letters to the committee. Their evidence almost unanimously pointed to added supply chain costs brought on by the pandemic and the war in Ukraine, as well as price inflation on parts and labour for the higher costs.

Meanwhile, a poll of Citizens Advice advisers found that more than 50pc of people seeking advice had cancelled their car insurance because it was too expensive. Two years ago that figure was just 5pc.

Thérèse Coffey MP, a former Cabinet minister, told Telegraph Money that there is still a “miraculous phenomenon” whereby insurers can “offer you a big increase one minute and then suddenly come up with much better prices if you threaten to leave”.

Shopping around for a better policy using a price comparison website is among the first things motorists can do to reduce costs and your insurer may even give you a better quote if you threaten to quit as a customer.

Consumers can also try to make themselves less of a risk to insurers. This could include fitting a black box, adding a more experienced driver to your policy, choosing a vehicle that is easier to insure ( electric vehicles are among the most expensive) or reducing your mileage.