New plan to tackle soaring car insurance premiums - will it work?

The days of sky-high car insurance premiums could be numbered if an action plan to tackle record rises is successful.

The Association of British Insurers (ABI) has today (27 February) published a roadmap to slamming the brakes on soaring motor cover costs, outlining 10 steps that industry, governments or regulators could initiate or improve.  

Motorists saw insurance costs rocket in 2023, with ABI analysis showing premiums were 25% more expensive last year than in 2022. So will this new proposal keep prices under control? Which? takes a closer look at the ABI's plan, to find out.

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Why are car insurance costs rising?

Motorists paid an average of £543 in 2023, up from £434 in 2022. The latest ABI figures showed the average premium in the last three months of 2023 jumped 12% on the previous quarter - up from £562 to £627. The current average premium is 34% higher compared to the final quarter of 2022, when it was £470. 

While technological advancements in new vehicles have helped push up the cost of repairs and replacements, inflation is the main reason why premiums have gone up over the last year. 

ABI data shows the cost of repairs jumped 32% in the third quarter of 2023. Other cost pressures reported by insurers during the same period include longer repair times - this drove up the cost of providing replacement vehicles by 47%. The cost to replace written-off vehicles has also increased as the average price of new cars has risen 43% over five years.

All of these pressures mean insurers are spending more on claims and costs than they are collecting in premiums. Professional services firm EY estimates that in 2022, for every £1 paid in premiums, insurers incurred £1.11 in claims and expenses. They now estimate that this figure rose to £1.14 in 2023.

• Find out more: how to find cheap car insurance

How will the ABI's action plan benefit drivers?

While CPI inflation has fallen considerably since a peak of 11.1% in October 2022, its current level of 4% is double the Bank of England's 2% target.

The bleak picture has prompted the ABI to put together a 10-point plan to end the recent wave of premium price spikes.

The step most likely to have a direct impact on consumers in the near future is the promise of more available data on which vehicles are most expensive to insure. The ABI hopes this will help people make more informed decisions when buying a new car.

Young drivers could also be hit with the introduction of 'graduated driving licenses' to improve road safety and reduce risk-associated costs. These require new motorists to pass in stages rather than by taking one big test. 

Other steps require more coordinated action

Many of the steps included in the roadmap are less straightforward and rely on other parties, such as the government or law enforcement, to get on board.

For example, the ABI would like to see more action taken by the industry to tackle fraud and uninsured driving - something which pushes up premiums for honest drivers. ABI figures last summer showed the average value of car insurance fraud was £1.1bn in 2022. 

Our survey of Which? members who'd experienced insurance fraud in the last five years, found identity theft, induced accidents and false claims were most common. 

Another step involves working closer with the police, vehicle manufacturers and other public bodies to reduce the amount of cars being stolen. Car theft is on the rise in the UK, with figures from AA showing a 25% increase in 2022. 

Other ways the ABI would like to improve the industry, and reduce the knock-on effect some issues have on premium costs, include campaigning for better road and car safety measures, reforming and rethinking how injury claims are handled, and working with the government, manufacturers and independent mechanics to improve the repair sector.

There are also calls for the government to lower Insurance Premium Tax (IPT), which the ABI claims adds £67 to the average policy.

• Find out more: best car insurance companies

What doesn't the plan include?

Unfortunately, the ABI's current plan doesn't include direct action to tackle the issue of premium finance schemes, which allow consumers to pay monthly instead of in one go.

Which? research has found that people who agree to this type of payment plan can end up paying hundreds of pounds more in interest on monthly repayments, despite being less financially resilient. In light of these findings, we are calling on the Financial Conduct Authority (FCA) to do more. 

However, the ABI confirms it is in discussions with the FCA and its members on possible industry action and is also considering how it can work with other organisations not in its remit to make improvements. 

How to reduce the cost of car insurance

The ABI's plan is a step in the right direction, but there are some simple ways you can reduce the cost of car insurance yourself.

• Shop around: you should always see what other deals are available before you commit to renewing or buying a new policy. Use price comparison sites which allow you to view multiple car insurance quotes at a glance. Remember to also take a look at our latest Which? Recommended Providers.
• Go annual: paying for a whole year in one go instead of monthly could save you hundreds of pounds. 
• Renew early: you'll also often get a cheaper price if you renew your cover a few weeks (rather than a few days) in advance of the policy's end date.
• Keeping mileage down: try to limit the miles you clock up over the year to avoid being hit with a higher premium.
• Watch out for occupation: you job can also impact the price. One trick to get around this price hike – without lying – is to try and tweak your job title. For example, instead of 'barber', try saying 'hairdresser' or 'hair stylist'.
• Haggle: if you don't want to switch to another insurer, you might be able to get the price down by haggling. Take a look at our guide for tips and advice on how to talk the talk and get a better quote. 

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