In Focus: Industry responds to Labour’s promises on car insurance

With the 4 July 2024 general election fast approaching, political parties are currently dominating news feeds as they look to secure votes in order to form a government.

Plenty of party pledges have already been made – among them being Labour’s vow to tackle “out of control” car insurance premiums following a rise in prices in recent years.

For example, according to figures from Confused.com and WTW, published in April 2024, motor premiums saw an annual rise of 43% – equating to £284 – between Q1 2023 and Q1 2024.

Therefore, shadow transport secretary Louise Haigh said that regulators, such as the FCA and Competition and Markets Authority, needed to investigate the sector.

It’s time to clear up the mess the Tories have left our roads in.

Labour is on the side of drivers.

🔧 1 million more potholes every year fixed.
💷 Soaring car insurance costs tackled.
👷‍♀️A long term plan to make our roads safer, reduce traffic and speed up works.

— Louise Haigh (@LouHaigh) June 11, 2024

“Car insurance is a legal requirement and an essential – not a luxury. Labour won’t sit back and watch while drivers are punished by the out of control cost of cover,” she told The Mirror in June 2024.

“We will urgently call in the regulators to crack down on any unfair practices and to come clean on the causes of soaring costs for consumers.”

Rate of increase

This message has grabbed the attention of the insurance industry – especially as premium increases are partly caused by costs to insurers going up.

For example, the ABI stated that from the end of 2017 to present day, the sums needed to pay claims have risen by 23%.

And professional services firm EY estimated that for every £1 collected in premiums, the industry paid out £1.14 in claims and expenses.

The rises came following inflationary pressures off the back of the Covid-19 pandemic, with repair costs – for example – increasing as a result.

Although Matthew Maxwell Scott, executive director of the Association of Consumer Support Organisations (Acso), said there were valid reasons for the cost of insurance going up, he felt Labour’s view was also understandable because premiums had risen “well beyond average”.

He told Insurance Times: “There are quite good reasons why motor insurance would have gone up – the only problem with that as an explanation is they have gone up well beyond average.

“Premiums have gone up well beyond headline inflation, so it’s perfectly understandable that Labour would look at that and think ‘well is something going on here, is the consumer being disadvantaged and how can we bring bills down’?”

Andrew Brown-Allan, executive vice-president for Europe, Middle East and Africa (Emea) growth at vehicle and driving data company IMS, added: “I think the statement [from Labour] is well made and I think something has to happen in terms of a consumer perspective and from the point of view of affordability.”

Opposing view 

However, such a promise from Labour was always likely to spark disagreement – Aviva chief executive Amanda Blanc, for example, felt that saying there was an issue with the motor market was “fundamentally flawed”.

Blanc said at the Financial Times’ Global Insurance Summit in June 2024 that the promised clamp down on car cover premiums would be using a “sledgehammer to crack a nut”.

Meanwhile, Jeff Winn, executive chairman at accident management and rehabilitation firm Winn Group, told Insurance Times that he did not think Labour would “come away with very much” following an investigation.

“It is going to be very hard for an investigation to root out waste and inefficiency, so I don’t think the savings will be where Labour might be hoping they are going to be,” he said.

“Labour [is] probably genuine in [its] beliefs that [the party wants] to cut car insurance, but I don’t know how much [it is] going to be able to do it.”

Speaking about the motor market in general, Sabre Insurance chief executive Geoff Carter said that this insurance “was still good value”.

He added: “You can buy a policy for £500 one day and we can be paying a cheque out for millions [to] someone [a policyholder] has injured a few months later.

“Insurance premiums are no less affordable than they were in 2018, it’s just all of that [price] increase has come [mostly] in one year, rather than steadily across the period – if you look at an index of average wages and average premiums and extrapolate that from 2018 to now, insurance costs have not risen more than the average increase in wages. It’s all just happened in one go right at the end.”

Where do premiums stand?

A look at the latest ABI figures, meanwhile, show that there was a minimal increase in premiums during the first quarter of 2024.

Published in April this year, the data revealed that the average comprehensive car insurance premium sat at £635 between January and March 2024, up just 1% from the previous quarter.

However, Brown-Allan said that consumers “would not feel that in their own pockets”.

He highlighted young drivers, claiming that across the telematic policies this demographic usually purchase, they were seeing prices of between £1,300 to £1,500 around 10 years ago, but this is now “well north” of £2,000.

“The situation has significantly worsened for that part of the population,” he said.

“They are paying the highest rate of insurance premium tax (IPT) by paying the highest premiums.”

However, the ABI set out steps the industry was taking to combat the rise in the cost of motor insurance at its conference in February 2024.

It also announced that its members had agreed a set of principles around premium finance, aimed at managing the cost associated with paying for insurance on a monthly basis.

Mervyn Skeet, the ABI’s director of general insurance policy, felt the association’s latest figures demonstrated that the motor market was still competitive as insurers look to keep prices stable, despite incurring higher costs.

Carter added: “Insurers don’t make a tonne of money [in motor] – if you look at combined ratios over the last two years, the industry average was about 120%, so they’re not making lots of profit out of writing the business.

“If anything, the customer has seen great value for a few years while the premium wasn’t going up.”