Motorists have been told to brace for a rise in car insurance premiums in the coming months, which will spell another blow to the cost of living for Britons, according to the latest industry update.
Average car insurance rose £5 in the second quarter of the year, with the Association of British Insurers saying providers are “finding it increasingly difficult to absorb rising cost pressures” and start passing it on to customers.
Insurers say skyrocketing used car values, rising material costs and parts supply chain problems that delay vehicle repairs are starting to bite — and warn that this is expected to continue into 2022 and into next year.
Auto insurance prices on the rise again: ABI says insurers struggle to cushion rising cost pressures from skyrocketing used vehicle values, more expensive parts and delayed repairs
The £5 quarterly increase in the price of motor insurance means the average policy is up 1.3 percent to £419, according to the ABI’s Motor Insurance Premium Tracker.
Despite the warning that prices are rising, premiums were £11 lower than a year ago.
However, this is partly due to new rules introduced this year by the Financial Conduct Agency to prohibit insurers from providing renewal quotes that are more expensive than those offered to new customers.
The latest report from the ABI published this morning shows that the average premium paid for a new policy in the second quarter was £129 higher than for a renewed policy.
Average new policy premiums rose 3 per cent to £500 as reforms appear to spell the end of new contract discounts.
As for existing customers, average premiums for renewed policies rose 0.5 per cent to £371 – a price difference of £129 a year, according to the premium tracker.
While the new rules appear to protect loyal customers from scams, the trade association says the general cost of auto insurance will rise.
For months there have been warnings that increasing pressure on the industry to absorb higher costs would eventually lead to higher prices for consumers – and this is now starting to take effect.
What is driving the rise in auto insurance prices?
A number of factors will push premiums up in the coming months.
First and foremost, there is the higher value of used cars.
According to industry reports, prices have been rising for 28 consecutive months and remain at record levels.
It was caused by the shortage of semiconductor chips and other components available to automakers since the pandemic. This has limited the production of new cars, reducing the number of models available.
Now that order books are high, drivers are turning their attention to the second-hand market.
Due to this increased demand, you pay a lot more for a used car today than a few years ago.
In July, the average price of used cars rose 0.3 percent month-to-month to £17,173, according to Auto Trader’s own data. That’s nearly 20 percent higher than the same month in 2021 – and £4,100 higher than pre-pandemic July 2019.
Data from AutoTrader shows that the average asking price for used cars peaked in April. They have stabilized at just over £17,000 and show no signs of tumbling any time soon
Last month, the average price of used vehicles was almost a fifth higher than in July 2021 and £4,100 higher than in July 2019 before the pandemic
A shortage of parts – exacerbated by the Russian invasion of Ukraine – has also had a huge impact on vehicle repair times, also increasing costs for insurers, such as extended periods for replacement vehicles while the owner’s car waits to be repaired. become.
Coupled with rising prices for commodities, such as paint and glass, and increasingly sophisticated vehicles that are more expensive to repair, one insurer estimated repair cost inflation at 11 percent.
The ABI adds that a ‘skilled labor shortage in the car repair sector’ is also likely to take its toll at a time when Britons face the greatest strain on their finances in decades.
Callum Tanner, ABI’s head of general insurance, said: “Insurers realize that these are difficult times for many households dealing with the rising cost of living.
“While auto insurers, like many other sectors, face increased cost pressures of their own that are becoming increasingly difficult to absorb, they will continue to do everything they can to keep auto insurance as competitively priced as possible.”
Higher raw material costs and delays in getting parts for repairs also lead to higher costs for insurers – and the ABI says some can no longer absorb these
Separate analysis by Intelligent Motoring suggests that repair costs rose by an average of a third year over year in the first half of 2022.
Analysis of more than 12,000 extended warranty claims it has paid out shows that the average price of a repair in the months of January to June 2022 is £372 – up from £279 over the same period a year ago.
It also pointed to ongoing supply chain problems, rising energy and fuel prices and a shortage of skilled engine technicians.
Last month, the Motor Ombudsman warned motorists of a possible rise in repair costs.
About 63 percent of the independent garages and franchised dealerships it surveyed said they will try to raise prices to stay afloat after a tough opening in the six months of 2022.
Insurance quotes suggest Reading has the biggest appetite for electric cars
With electric car sales soaring as drivers prepare earlier for the 2030 ban on new petrol and diesel vehicles, a new study points out that Reading has the biggest appetite for EVs right now.
MoneySupermarket data suggests the Berkshire town has the highest number of electric car insurance applications than anywhere else in the UK, with 2,016 per 100,000 people who have lived there in the past year.
Top 10 cities with the most questions about electric car insurance
Ranking is based on the number of applications per 100,000 inhabitants of the city:
1. Reading: 2,016 per 100,000 people
2. Guildford: 1,866
3. Stevenage: 1,806
4. Watford: 1.556
5. Chelmsford: 1.535
6. Oxford: 1.425
7. Slough: 1,377
8. Preston: 1,181
9. Warrington: 1,166
10. Norwich: 1.044
This was 8 percent higher than Guildford (1,866 applications for every 100,000 people), which came in second.
Other locations in the top five were Stevenage, Watford and Chelmsford.
At the other end of the spectrum, EVs are the least popular among drivers in Sunderland.
The city where Nissan produces the electric Leaf received just 101 applications per 100,000 inhabitants last year, the figures show.
Sara Newell, MoneySupermarket’s auto insurance expert, said: ‘It’s great to see electric car ownership on the rise as more people move from petrol or diesel cars.
“Electric cars and vans are often more expensive to insure than petrol or diesel vehicles due to the cost and availability of spare parts and the general need for specialized repair work.
“But as more electric vehicles hit the market and with the government’s approaching ban on new petrol and diesel cars by 2030, insurance costs will fall.”
Some links in this article may be affiliate links. If you click on it, we can earn a small commission. That helps us fund This Is Money and use it for free. We do not write articles to promote products. We do not allow any commercial relationship to affect our editorial independence.