Claims costs crank up motor premiums by 12% between 2023’s Q3 and Q4

The average motor insurance premium paid in the UK has increased by 12% between 1 October and 31 December 2023 – up from £562 a year to £627, according to new figures from the ABI.

The trade association’s most recent Motor insurance premium tracker, published on 31 January 2024, revealed that escalating claims costs drove motor cover prices up by 34% year-on-year – the average annual motor premium was £470 in Q4 2022, compared to £627 for 2023’s fourth quarter.

The ABI noted, therefore, that motor insurance was 25% more expensive on average in 2023 versus 2022. Annual premiums in this line of business last year were £543, compared to £434 in 2022.

The Motor insurance premium tracker analyses around 28 million policies that are sold via the ABI’s insurer members. It is based on the price that customers pay for their cover, as opposed to the figures consumers are quoted.

Mervyn Skeet, director of general insurance policy at the ABI, said: “We are working with our members to understand what actions can be taken to help motorists manage costs.

“The cost of premium finance is one of a number of topics we continue to discuss with our members and the FCA. We’ve also been very clear, and continue to underline, that cutting Insurance Premium Tax would provide immediate relief for stretched consumers.

“We will be saying more, as we can, on other steps we will take in the coming weeks.”

The standard 12% rate of Insurance Premium Tax currently adds £67 to the average motor premium, the ABI added.

Accelerating costs

The ABI explained that pricier motor premiums can be attributed to growing claims costs.

It cited AutoTrader Group’s Retail price index: February 2023 research, published in March 2023, as evidence of this trend.

This report found that year-on-year, between Q3 2022 and Q3 2023, repair costs jumped up by 32%, payouts for vehicle thefts rose 35% and the cost of providing replacement vehicles grew 47%.

Meanwhile, a July 2023 report - Impact of BEV adoption on the repair and insurance sectors - from not-for-profit organisation Thatcham Research noted that electric vehicles were 25% more expensive to repair than their petrol counterparts, with these fixes taking 14% longer to complete too.

The trade association additionally quoted professional services firm EY, stating that the organisation’s analysts forecast that for 2023, insurers will pay out £1.14 in claims and operating costs for every £1 received in premiums.

Skeet continued: “We’re acutely aware of the impact that rising motor insurance premiums continue to have on motorists.

“Rising repair costs and other factors outside of insurers’ control mean there is no single action that could bring down premiums. However, we are determined to do all we can to put the brake on.”