Why Your UK Car Insurance Price Is So High

Why car insurance premiums have risen so dramatically in the UK

The cost of insuring a vehicle in the UK is at an all time high with the average car insurance price costing up to 40% more than they did a few years ago. What has caused this huge increase?

In this article about expensive car insurance premiums we shall examine:

  • The price that the average insurance policy has risen by
  • The causes of these price increases
  • Who is being worse affected by the price hikes?
  • Some factors that determine policy prices
  • Ways that more cost effective premiums can be had

How much have UK car insurance premiums risen by?

According to data from the AA, the price of fully comprehensive insurance, based on the average prices from the five most economical providers, has risen from 577 pounds to 690 pounds during the last year. The figures for the market as a whole show that the average price of 981 pounds has increased to a whopping 1152 pounds during the same period. The differences in these figures highlight the necessity of shopping around for the cheapest policies in order to get the best value for your money.

What is causing this jump in the prices of UK car insurance?

There are a number of factors that have caused these huge price increases of car insurance policies. As from June 1 2017, the Insurance Premium Tax (IPT) has been increased by 2% to a staggering 12%. This is a tax imposed by the government on all kinds of insurance including vehicle, pet, home and life insurance policies. It is an easy way for the government to collect money to fill other areas of the budget.

The building of the HM Treasure in London

This latest 2% increase means that IPT has doubled in the last few years. Insurance companies have warned that the 2% increase will cause an average family to pay 47 pounds more for their policies. The rise will affect motor policies by an average of 8 pounds a year. According to a BBC report, a Treasury spokesman said, “Insurance Premium Tax is a tax on insurers, not consumers – insurance firms decide whether to pass it on to their customers or not”.


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March 2017 saw changes in the Ogden rate

The Ogden rate is the name for the way that personal injury claims are calculated. Victims who receive money from a personal injury claim often have their money invested their to make the amount more substantial over a period of time. Insurers payouts have enjoyed a discount rate of 2.5% until recently, when The Ministry of Justice reduced the discount rate to 0.75% as interest rates have been so low for a long time. This means that the payouts have become higher at the insurers expense.

It is estimated that the high numbers of fraudulent claims are adding an extra 40 pounds to the cost of motor insurance policies.

In an attempt to crack down on fraudulent insurance claims, “claims management” companies will now be regulated by the Financial Conduct Authority. False claims for injuries such as whiplash are extremely high in the UK. It is estimated that the high numbers of fraudulent claims are adding an extra 40 pounds to the cost of motor insurance policies.

Further reading: Whiplash claims in 2020

UK car insurance questions:

Is fully comprehensive car insurance worth it?

This entirely depends on your personal circumstances and the value of the car you are driving. For example, if you drive a 10 year old car that has a value of £3000 and you have a £500 deductable, then perhaps it is more prudent to have cheaper third-party car insurance. On the other hand, if your car is worth £10,000 then it may be wiser to have fully comprehensive car insurance. Shop around for cheaper car insurance as policies can vary hugely between different vehicle insurers.

How do I get same-day car insurance?

Most motor insurance companies in the UK offer same-day coverage as soon as you subscribe to their policy. Although you may not receive the paperwork for a week or so, you should be covered from the very start of the policy. If you are buying a car and call an insurance company it is wise to tell them you need same-day cover just to make your situation absolutely clear. Every company has their own set of rules so check before driving and never assume you are covered unless your car insurance company has confirmed that is the case.

How do car insurance payments work?

A car insurance policy is a contract and most motor insurance companies in the UK offer an option to pay your annual insurance on a monthly basis. This is usually by direct debit from your bank and can cost more than paying for your insurance up front in one payment. Paying for vehicle insurance by monthly direct debit is common practice in the UK and can help to spread the costs of your car or bike insurance. This is especially useful if you have a higher car insurance premium.

Modern cars are increasingly more technical than their predecessors

For people that have fully comprehensive policies, the increasing amount of new, high-tech cars on the market mean that these new electronic features are much more expensive to repair. The recent weakening of the pound has meant that the cost of importing these spare parts that are needed in order to carry out necessary repairs have soared. These changes have all been reflected in the increasing price of car insurance policies.

Who are the consumer groups being most affected by the rising car insurance prices

According to AA sources, the level of price increases varies for car insurance and those who apply for car finance depending on the age of the consumer, the area that they live in and their gender. To show this variety in price differences around the UK it can be seen that the cheapest policy in the London area, for the second two quarters of 2017, showed a 7% increase. Compare that to a 3.5% rise in Northern Ireland and a staggering rise of 11% in Anglia and it can be clearly seen how the area that a person resides in can greatly affect policy prices.

A young driver at the wheel of the car who has faced a 10,6% rise in policy prices

The smallest rise in prices was to consumers within the age group of 50 – 59 years old, who have seen their policies rise by an average of 6.2 % for the first two quarters. This is quite small in comparison to the soaring 10.6 % that younger policy holders from the ages of 17 to 22 years old have had to pay. The largest gender gap in policy payments can be seen in the group between 40 – 49 years old. Women with in this age range are paying 9.6 % more for their premiums compared to a 6.6% rise for men.

So what have we learned so far?

  • Motor insurance in the UK is at an all time high
  • This massive increase has occurred over the last few years
  • IPT has increased to 12% from June 2017
  • The Ogden rate has been decreased meaning payouts are now more expensive for insurers
  • The fall in Sterling means that spare parts needed for car repairs are more expensive
  • The cost of insurance policies depends on age, gender and area

What are some of the factors that determine the price of car insurance premiums?

There are a number of factors that insurers take into account to determine the price of an insurance policy. Here are some of the most important factors:

The type of car

The latest car designs and expensive sporty models always cost more money to insure. Surprisingly though, classic cars can be relatively cheap to insure as insurers consider the fact that most classic cars are taken better care of by their owners.

The area where you live

Insurers examine post codes to determine the risk factor for the area in which you live. Those areas with high car theft statistics cause policies to rise in price. Built up areas with heavy volumes of traffic and high accident rates are also risky for insurers compared to empty country roads.

Areas with heavy volumes of traffic cause policies to rise in price

The place in which the vehicle is parked

The parking space of a car can play a role in the price of the policy. Underground garages, and private parking spaces can sometimes be a lot quieter than a well lit, busy, street parking place.

The driver

Sometimes the addition of a responsible older driver’s name to a policy can decrease the price. This can happen when the additional driver has a clean claims policy and a responsible “safe” profession. The age of the driver can also affect the price. Older drivers are often less risky and have more experience. Click here to find out more about over 50’s car insurance.

The mileage of the vehicle

This is a simple conclusion that insurers use to determine higher risk drivers. The more the vehicle is used, the more likely the driver is to be involved in an accident. Drivers who use their cars to commute to work are also around at the times when the traffic is heaviest.

The driver’s claims history

A no claims discount bonus is attained every year that a driver is claims free. Any claims that have been made over the last five years can affect the premium price.

A car that is safely parked in the driveway of a house in an effort to reduce car insurance premiums

The driver’s profession

Insurers see some professions as more risky than others and this will reflect in the policy price.

The cars’ security

By ensuring that all the latest safety features are installed on a vehicle the policy price can fall significantly. These measures include steering locks, alarm systems, immobilisers and tracking devices.

Here are some ways to cut the price of a car insurance policy

By altering a job title, parking in a safe place and adding another driver, premiums can be lowered in price. It is important to try and be honest when filling out insurance forms as any dishonesty could lead to an insurer not paying out for a claim. Shopping around the market place for the cheapest policy is a must, as the price ranges between different companies do vary tremendously.

Sometimes adding an older driver’s name to a policy can decrease the premium price.

By installing Telematics, a black box used by insurers to monitor driving habits, policies can be greatly reduced. By paying a bit more, a no claims bonus can be protected and by selecting the highest excess figure the cost will be reduced. A lump payment will also work out cheaper than monthly instalments.

So what conclusions can we draw about the rising insurance prices?

Insuring possessions is often a legal requirement which leaves the consumer no option but to pay the increasing prices. Savings can be made by shopping around and trying to lower risk factors, but it doesn’t appear that the price of car insurance policies will be lowered any time soon.