Motor insurance premiums continued their upward march in the fourth quarter of 2023, rising 12% over the previous quarter to an average of £627, according to new figures from the Association of British Insurers (ABI). This represents a substantial 34% increase compared to the same period last year.
Across the whole of 2023, the average motor insurance policy cost 25% more than in 2022, with the ABI reporting the annual average premium hit £543. This rapid rise in prices reflects the major cost pressures insurers face.
Spiraling Repair and Claims Costs Squeeze Insurers
Data indicates insurers paid out significantly more over 2023 in motor claims compared to what they received in premiums. Increased payouts for vehicle thefts, replacement car hire and write-offs all contributed.
But the biggest factor was repair costs. The amount insurers spent on repairs jumped 32% in the third quarter of 2023 to £1.6 billion. More sophisticated vehicles packed with technology have driven up labor and parts expenses. Early research also shows electric cars cost about 25% more to repair than petrol models.
Insurers Feel the Strain
Faced with fast-mounting claims and operating expenditures, insurers find themselves paying out more than they take in. Analysts at EY estimate that for every £1 received in premiums in 2022, insurers paid £1.11 in claims and costs. They predict this gap widened further in 2023 to £1.14.
Understanding the Motorist Impact
The ABI recognises the continuous increases take a toll on policyholders. Mervyn Skeet, the organisation's Director of General Insurance Policy, asserted that while no single step could dramatically lower premiums given the array of factors, insurers aim to apply the brakes however possible.
This includes assessing options around premium financing costs and pushing for reduced Insurance Premium Tax to supply immediate consumer relief. The ABI plans to announce additional potential measures in the coming weeks as well.
With Insurance Premium Tax currently adding £67 to the average policy, reducing this levy could make a difference. But as repair and claims charges continue rising, drivers look set for further premium hikes until insurers succeed in tackling these core costs.