Why your car insurance may be more expensive

Motorists are being hit by rising car insurance renewals, but there are ways to swerve the price hikes.

The average price paid for car insurance rose by 8% during the fourth quarter of 2022, according to trade body the Association of British Insurers (ABI).

More recent data from Compare The Market in April shows the typical cost of car insurance is £613 per year. That’s up by £81 based on what drivers paid in April 2022.

Subscribe to The Week

Escape your echo chamber. Get the facts behind the news, plus analysis from multiple perspectives.

SUBSCRIBE & SAVE

Sign up for The Week's Free Newsletters

From our morning news briefing to a weekly Good News Newsletter, get the best of The Week delivered directly to your inbox.

From our morning news briefing to a weekly Good News Newsletter, get the best of The Week delivered directly to your inbox.

Sign up

The “unwelcome, albeit below inflation rise for motorists reflects the sustained cost pressures faced by motor insurers”, the ABI explained.

It is not just the cost of fixing a car and honouring a claim that has gone up, though. A growing number of motor insurers are charging customers extra for administrative tasks such as setting up or renewing a policy, said This Is Money.

How is car insurance priced?

The cost of your car insurance premium is based on how likely your provider thinks you are to make a claim, said Compare The Market, and how substantial any claim could be.

An insurer will consider factors like your age, job, where you live, your car type, where it is parked and your driving track record.

Ultimately, said the website, “car insurance providers calculate your car insurance premium by assessing how big a risk you pose to them”.

Why are renewal prices rising?

According to the ABI, insurers are using rising costs of energy and materials when funding repairs to justify price increases, as well as the increased costs of giving customers courtesy cars to drive while their vehicles are being repaired.

New Financial Conduct Authority rules that ban car insurers from charging new customers more than existing ones have also had an impact, as “the rules do not set or cap the level of premium paid by new or existing customers”, said the ABI.

Some insurers have been using “sneaky” fees, said The Money Edit, boosting charges “for anything from a change to your policy to the cost of cancellation”.

Financial analyst Defaqto says 48% of standard comprehensive motor policies now include a set-up fee, compared with just 21% five years ago. The average fee is £40.02, which has gone up by 25% since 2018, The Money Edit continued, adding that “this will be included in your quote rather than a stand-alone fee”.

Of course, your cover could also be increasing due to the way you drive. If you’ve made a claim on your car insurance in the past year or you’ve had a driving conviction, said Forbes Advisor, insurers will regard you as higher risk and will push up your premium accordingly.

How to find the best car insurance deal

As with most financial products, the secret is to shop around.

“Letting your car insurance auto-renew could be costing you up to £388 a year,” said Which?. “Even if you don’t switch insurer, getting quotes from others could help you save money through haggling.”

Don’t delay when your policy is coming up for renewal. “Generally, the closer you get to your renewal date, the more you’re likely to pay for your car insurance,” said Forbes Advisor.

The cheapest time to renew is generally about two to four weeks before your renewal date. This is because insurers know that you’ll be increasingly keen to get your cover in place the closer you are to your existing policy expiring. “Their logic is that this will make you more willing to swallow a higher price,” said Forbes.

Think about how you describe your job as this could increase your premium if it is seen as a risky profession. Any changes would have to be within reason and must not be fraudulent, said Ryan Fulthorpe of Go.Compare, but if you changed your job title from “chef” to “caterer” or from “journalist” to “writer”, these would be acceptable ways to describe your profession and could push your premiums down.

Another way to reduce your car insurance costs is to pay annually rather than monthly, which could save you 10% or more, said MoneyWeek.

Building up your no-claims bonus can also get you cheaper premiums, as can adding an experienced driver to your policy, said The Money Edit.

Check if you can get cheaper deals through your existing home insurance or current account and see if you can earn extra money by taking out the cover through a cashback site.

“You should first look at what suits your needs and which insurer best meets them,” said The Money Edit, “and then check if you can get cashback as a secondary means of saving money.”