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With the whole of the country trying to cope with a cost of living crisis, it appears that the cost to drive a vehicle on UK roads is not immune from the same issue.
UK's drivers have seen a significant and unexpected surge in premium rates. This can only increase the financial stress of the nation reeling from unprecedented energy and food price inflation.
The steep increase has even outpaced the overall inflation rate. The reasons for this include the higher costs of second-hand cars and spare parts impacting the cost of claims.
This article aims to provide a comprehensive analysis of this intricate issue, exploring the underlying reasons for the surge and its potential implications for UK motorists.
The motor insurance industry is a major component of the overall UK economy. However, the recent surge in premium rates has highlighted concerns about affordability for the UK motorist.
Data from the Office for National Statistics (ONS) indicates a 43% in car insurance premiums in the last twelve months.
This sharp increase is much higher than the general inflation rate in the UK, which is currently 8.7%.
This situation is putting a considerable financial burden on many drivers across the country.
The Association of British Insurers (ABI), on the other hand, suggests a lower increase of 16% in the first quarter of 2023.
This difference between the ONS and ABI data can be explained by the different methodologies used. While the ONS tracks quoted prices, the ABI looks at the prices people actually pay.
This divergence in data underscores the complexity of the issue at hand.
While the ABI's data provides valuable insights into the actual costs borne by consumers, the ONS data offers a broader perspective on the market trends shaping the industry.
There are a number of reasons behind increasing car insurance premiums.
One of the main factors is the rising cost of second-hand cars.
The global pandemic has disrupted the new car supply chain. This shortage has seen the price of new cars increase.
An increase in car values means that insurers will be paying out more in settlements.
The cost of spare parts has also seen a significant increase.
The shortage of microchips and semiconductors, essential components in modern vehicles, has made these essential components more expensive.
This has not only increased the cost of repairs but also extended the time cars are out of action after a claim, leading to longer periods for which claimants need a courtesy car.
Another contributing factor is the ban on the 'loyalty premium', a practice where insurers would charge existing customers more than new ones.
While this move was intended to ensure fair pricing, it has inadvertently led to higher renewal quotes for many motorists. This development has sparked a debate on the unintended consequences of regulatory interventions and their impact on consumer costs.
The COVID-19 pandemic has had a profound impact on the insurance industry. It has led to higher repair costs, larger medical bills, increased litigation, and more accidents.
Larger claims have inevitably resulted in higher premiums for consumers.
The pandemic has also led to many people working from home and driving less.
However, despite the reduction in mileage, the cost of claims has not decreased proportionately, adding to the financial pressure on insurers.
While it's clear that insurers are grappling with increased costs, the burden on motorists is becoming increasingly heavy.
Can the issues with higher insurance premiums simply be resolved with a weakening of car pricing?
There has been a recent trend of used cars losing value, with the lastest figures showing a 1.4% drop in June 2023.
There is little doubt that lower claims costs will help keep car insurance premiums in check, and even fall.
However, for the time being, it appears that car insurance premiums are adding to the general cost of living crisis in the UK.
Written 1/7/23, written by Mark Griffiths