UK Motor Insurance Costs Surge by a Third in a Year, Putting Pressure on Households

The cost of comprehensive motor insurance in the UK has surged by a third over the past year, placing additional strain on household finances, according to recent data released by the Association of British Insurers (ABI).

In the first quarter of the year, the average premium for car insurance stood at £635, marking a notable increase of £157 from the £478 average recorded in the same period of 2023.

Despite this steep rise, the ABI noted a stabilization in prices, with motor premiums increasing by only 1 percent on a quarterly basis.

For many households, motor insurance ranks as the third largest expense after energy and council tax bills.

Despite efforts to stabilize premiums, average claims have continued to soar, rising by 8 percent compared to the final quarter of 2023. The average claim paid out by insurers has now reached a record £4,800.

Mervyn Skeet, Director of General Insurance Policy at the ABI, emphasized the competitive nature of the motor insurance market, highlighting insurers’ efforts to absorb significant cost increases while striving to maintain relatively stable prices.

Skeet stated, “We understand that car insurance costs are putting pressure on household finances. These figures demonstrate how competitive the motor market is, with insurers absorbing significant cost rises but keeping prices relatively stable. Even though these figures demonstrate a slowdown in price increases, we won’t be taking our foot off the gas when it comes to our work on tackling the cost of cover.”

The ABI highlighted the challenging year for motor insurance margins, with analysis by professional services group EY estimating that insurers in the sector paid out £1.14 in claims and expenses for every £1 collected in premiums.

Rocio Concha, Director of Policy and Advocacy at Which?, expressed concern over the persistently high premiums, stating, “While it’s encouraging to see the price of premiums steadying, they still remain eye-wateringly high and prohibitively expensive for many drivers.”

The ABI noted that motor insurance premiums have historically tracked inflation, with premiums rising by 1.3 percent in real terms since the peak in insurance costs at the end of 2017. The marginal increase in real-terms premiums is partly attributed to a significant drop in prices during the pandemic.

The ABI’s figures, based on premiums paid by customers of its member companies, were comparatively lower than other estimates derived from quotations. The Office for National Statistics reported a 34.8 percent year-on-year increase in motor insurance quotes in the first quarter of 2024.

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