What's happening to car insurance premiums?

The average cost of comprehensive car insurance rose by just 1% in the first three months of 2024, sparking hope that price rises are finally easing.

Despite the apparent good news from the Association of British Insurers (ABI), prices are still much higher than 12 months ago. New Compare the Market data shows the cost of car insurance rose by 18% in the 12 months to May 2024.

Separate research also conducted by Compare the Market, published in June 2024, revealed that younger drivers are being hit hardest. The data showed 17-year-olds are being asked to fork out an average of over £3,000 a year for cover. 

Here, Which? delves into the cost of car insurance and explains how to pay less.

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What's happening to car insurance prices?

The ABI's latest figures show the average car insurance premium now sits at £635, up 1% from £627 in the final three months of 2023. The rise is significantly less than the 12% jump seen between the third and fourth quarters last year.

Published every three months, the ABI's data gives the most accurate picture of the market as it's based on actual prices paid by drivers (as opposed to just quotes), and covers both new customers and those renewing existing policies.

Its most recently published year-on-year analysis found that the average amount paid by drivers in January-March 2024 was 33% higher than in the same quarter last year.

The chart shows how the average cost of a car insurance premium has risen since January 2022:

The ABI isn't the only industry group with an index showing how prices have changed. Comparison sites publish data as well, but their figures only reflect quotes given to customers searching for car insurance.

Compare the Market data, which is based on quotes, shows the cost of car insurance has risen by 18% year-on-year. The typical premium stood at £850 in May 2024 after rising by £132 over the previous 12 months.

Quarterly figures from Confused.com, also based on quotes, showed motorists paid 43% more for car insurance in the first three months of 2024 compared to last year. It says the average cost of taking out a new policy in the UK is now £941 – an increase of £284 in the past 12 months.

Meanwhile, the latest figures from insurance price experts Consumer Intelligence revealed the average quoted price of car insurance jumped by 56.4% in the year to February 2024.

All three indices found signs of a slowdown, however. Confused.com said premiums in the first quarter of 2024 were actually £54 cheaper on average than at the end of 2023, while Compare the Market found the average premium declined by £80 month-on-month from April 2024 when it was £930. That's down from a peak of £951 in November 2023.

The annual rise recorded by Consumer Intelligence is also lower than the 67.2% increase seen in the year to the end of November.  

• Find out more: best car insurance companies

How much are young drivers paying for insurance? 

Young people are being particularly squeezed by premium hikes, with the latest data from Compare the Market showing motorists that want to get behind the wheel at 17 - the minimum legal driving age - pay the most. 

A 17-year-old who has just passed their driving test faces paying an eye-watering £3,075 on average. That's a rise of 53% on last year, when the average insurance quote was £2,004.

The comparison site's research, based on quotes between March 2023 and March 2024, found premiums dropped significantly for drivers who passed their test in their 20s. For example, a 22-year-old who has just passed their test will pay an average of £2,503. That drops to £1,986 for a 27-year-old - 35% less than someone 10 years younger. 

Compare the Market's new figures follow data published in March 2024, which showed premiums for the under-25s rocketed by 50% in the 12 months to January 2024. 

• Find out more: black box insurance for younger drivers

Some drivers paying far above the average

Customers who choose to pay monthly are likely to be paying even higher prices, thanks to the sky-high interest rates charged by insurers.

Sales data examined by Which? earlier this year revealed that, as of last September, drivers paying monthly were forking out over £300 more on average than those who paid in one go. 

Drivers who choose to spread payments tend to be younger and/or less wealthy, leading the Financial Conduct Authority's head of insurance to describe insurers' interest rates as 'a tax on being poor'.

Which? is pushing for insurers' interest rates to be compared in a league table and for the regulator to take action against those not providing fair value.

• Find out more: industry promises to change pay-monthly car insurance - but is it enough? 

Why is the cost of car insurance so high?

The rate of CPI inflation might have dropped dramatically from its peak of 11.1% in October 2022 to 2.8% in May 2024, but soaring repair costs have been largely blamed for premium price rises.

ABI figures show that 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.

The ABI points to technological advancements in new vehicles as a factor in the cost of repairs and replacements going up. Electric vehicles, in particular, require more specialist expertise to repair and take longer to fix.

All of these pressures mean insurers are spending more on claims and costs than they're collecting in premiums. 

The bleak picture prompted the ABI to put together a 10-point plan to end the recent wave of premium price spikes. Last week, the group also announced a set of five new principles aimed at managing the cost of insurance for drivers who pay monthly. It's not yet clear, however, how effective its proposed measures will actually be. 

What impacts premium prices?

Location, age and experience all have an impact on premium prices. 

For example, drivers in inner London buying their car insurance in the last quarter paid £434 more than 12 months ago. On the other hand, those in Northern Ireland saw premium costs rise by £264 year-on-year, according to Confused.

The younger you are, the higher the cost of insuring a vehicle. That's because drivers who haven't been on the road for long are considered more likely to be involved in a car accident, so providers up their premiums to account for that increased risk.  

Government figures show that, in 2022, around a fifth of all those killed or seriously injured by collisions in cars involved a young driver. Young male car drivers aged 17-24 are four times as likely to be killed or seriously injured compared with all car drivers aged 25 or over. 

The cost of car insurance also drops over time as the driver gains more experience on the road. Compare the Market's latest research found new motorists paid £771 less after a year of driving.

How much could you save by switching?

Confused says loyal customers are facing some of the biggest price increases to their premiums. According to its survey of 2,000 drivers, of those who received their renewal between January and March this year, 75% received a higher renewal price of £94 on average. 

But you can potentially make big savings by shopping around for a better deal. The comparison site found 45% of customers that received a higher renewal quote saved an average of £90 compared to last year simply by switching provider.

A good place to start is by checking out price comparison sites, which allow you to view multiple car insurance quotes at a glance. The main ones for insurance are Compare the Market, Confused.com, GoCompare and MoneySuperMarket. 

But remember, not all insurers are on price comparison websites: Which? Recommended motor insurance Providers Direct Line and NFU Mutual are examples of this.

Other ways to keep costs down

Here are a few simple ways you can reduce the cost of car insurance:

• Go annual: paying for a whole year in one go instead of monthly could save you hundreds of pounds.

• Renew early: you'll 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.

• Keep mileage down: try to limit the miles you clock up over the year to avoid being hit with a higher premium.

• Tweak your job title: your occupation can also impact your premium. One trick to get around this – 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.  

Find out more: how to find cheap car insurance

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