Why UK Car Insurance Prices are Set to Continue Rising
If you’re a driver in the UK, you may have noticed your car insurance prices steadily increasing year over year. According to a new industry forecast by Oxbow Partners, this trend is set to continue well into the future with prices expected to rise by 14% this year and 6% in 2024. But what’s causing this increase and what can drivers do to protect themselves?
Rising Claims Costs Inflating Prices
Oxbow Partners attributes the rising cost of auto insurance to claims cost inflation, which is contributing to higher prices across the board. In addition, the cost of car insurance is already rising at the fastest pace in a decade, with the average UK motor insurance policy costing £478 in the first quarter of 2021. This is up 16% year on year and the highest level recorded since the end of 2019, according to data from the Association of British Insurers.
This increase in insurance prices is being driven by providers like Admiral and Hotline, who are increasing the value of payments by raising their rates. Unfortunately, this rise in costs is eroding insurers’ margins and forcing them to push prices even higher, creating a vicious cycle that seems difficult to break.
The Cost of Living Crisis
These rising costs have caused concern among regulators and consumer groups who worry that people will be forced to cancel their insurance coverage to save money during the ongoing cost of living crisis. If motor insurance premiums continue to rise at the rate we’ve seen over the past 12 months, we may see a knock-on effect of customers canceling, changing their coverage or opting for policies with inadequate coverage and high deductibles.
Catherine Carey, head of consumer strategy at consultancy Consumer Intelligence, warns that this could ultimately put people at greater risk. “We are catching up with very high inflation [in claims costs]”, said Cristina Nestares, managing director of Admiral for the UK. But incredibly high inflation is leading to a financially vulnerable public and a catch-22 for private insurers, who must balance their profits with their public responsibility.
Labor MP Dame Angela Eagle highlighted data from the FCA which shows some areas of insurance have very low payout ratios, a measure of claims as a proportion of premiums. She suggests that insurers could bring the price down a little bit and provide financial relief for drivers.
The Impact of COVID-19 on Car Insurance Prices
Car insurance prices are recovering from their recent low during the Covid pandemic when the streets were quiet, and the accident rate fell. However, rising costs of auto parts, labor and other expenses for insurers have since eroded insurers’ margins. As a result, insurers are now forced to push prices even higher to cover their losses.
The House of Commons Treasury Committee last week had insurance executives question them about their company’s excessive profits due to the faster than expected rise in headline inflation. The executives denied any excessive profits rather explaining that insurance prices were rising due to claims costs inflation and the need to catch up to headline inflation.
What the Future Holds
According to Oxbow Partners, insurers will break even on their underwriting next year as prices catch up on inflationary effects. However, there is always a worst-case scenario where inflation is much more entrenched than expected, and claims costs continue to rise. In that situation, providers will have to find ways to balance their profits and protect consumers.
Conclusion
The cost of car insurance is increasing rapidly in the UK due to rising claims cost inflation. Oxbow Partners expects prices to increase by 14% this year and 6% in 2024. The cost of car insurance is already rising at the fastest pace in a decade, and this is causing concern among regulators that people will be forced to cancel their insurance coverage to save money during the ongoing cost of living crisis.
These rising costs affect private insurers who must balance their profits with their public responsibility to provide affordable automobile coverage to citizens. Insurers need to be held accountable for excessive profits and will have to find ways to balance their books while still protecting their policyholders. As for drivers, it’s crucial that they conduct adequate research in order to find the best economical options to ensure that their financial safety remains secure.
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UK car insurance prices are set to continue rising this year and next, according to a new industry forecast, as concerns mount that people could be forced to reduce what is a key financial safety net.
Consulting firm Oxbow Partners said it expects the cost of auto insurance to rise overall by 14% this year and 6% in 2024, before flattening out in 2025. Prices rose faster than expected in the first quarter.
Paul De’Ath, head of market intelligence at Oxbow Partners, said there was “definitely still some momentum” in the recovery in insurance prices, led by claims cost inflation.
The cost of car insurance is already rising at the fastest pace in a decade, as big providers like Admiral and Hotline answers to increasing the value of payments by raising their rates.
The average UK motor insurance policy was £478 in the first quarter of the year, up 16% year on year to the highest level recorded since the end of 2019, according to data from the Association of British Insurers.
Rising insurance prices have fueled concerns among regulators and customer groups that people will cancel their insurance coverage to save money Cost of living the crisis drags on.
“If motor insurance premiums continue to rise at the rate we have seen over the past 12 months, we will likely see a knock-on effect of customers canceling, changing their coverage or opting for policies with inadequate coverage and high deductibles, ultimately putting at greater risk,” said Catherine Carey, head of consumer strategy at consultancy Consumer Intelligence.
Car insurance prices are recovering from their recent low during the Covid pandemic when the streets were quiet and the accident rate fell. But rising costs of auto parts, labor and other expenses for insurers have since eroded insurers’ margins and forced them to push prices even higher.
In the House of Commons Treasury committee last week, insurance executives denied making excessive profits, as insurance prices are rising faster than headline inflation, which was 8.7% in April.
“We are not profiting, we are catching up with very high inflation [in claims costs]”, said Cristina Nestares, managing director of Admiral for the UK.
Industry data released last week said the amount insurers spend on vehicle repairs has risen by a third in the past year, and rising costs have triggered profit alerts for some insurers.
Labor MP Dame Angela Eagle highlighted data from the FCA which shows some areas of insurance have very low payout ratios, a measure of claims as a proportion of premiums. “You could definitely bring the price down a little bit,” she told industry reps.
A recent separate index, by comparison platform Confused.com and broker Willis Towers Watson, showed that prices of publicly traded motor insurance were rising at the fastest pace in a decade. It highlighted central London, where average insurance premiums cost more than £1,000.
Oxbow expects insurers to break even on their underwriting next year as prices catch up on inflationary effects. But, said De’Ath, “the worst-case scenario is that inflation is much more entrenched than expected and claims costs continue to rise.”
https://www.ft.com/content/8415e6b6-7aed-4c01-97a1-28cec35d503c
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