If you’re looking to renew your insurance, you might be facing higher costs than usual. But why is this, especially when you haven’t claimed on your insurance? We explore the factors that are potentially leading to rising car insurance premiums in 2023.
Are insurance premiums really rising?
According to ABI, insurance premiums are indeed up year on year, and they’ve been rising steadily over the last few quarters.
The study shows that, in Q4 2022, the average price paid on renewal rose 8%, and the average price paid for a new policy in the fourth quarter of 2022 rose by 7% from the previous quarter. Further research suggests that this trend has continued into 2023, with prices continuing to rise.
In order to understand why this is happening, you first need to know how insurance premiums are calculated.
How are insurance premiums calculated?
Essentially, insurers calculate premiums by estimating the risk involved, and ensuring that the premiums they set for individuals cover the claims of those who need it.
If you take a look at your insurance policy documents, you’ll probably notice that your insurance covers quite an array of services, all of which need to be covered by the policies that are in place. Your policy might include:
Providing a replacement vehicle if yours cannot be fixed within an allotted time
Total loss protection
… and many more
What’s causing the increase in insurance premiums?
Premiums have increased recently because of high inflation. Ultimately, the insurance provider still needs to cover all the costs involved when someone makes a claim on their insurance, but inflation causes these costs to become more expensive.
This means that the costs involved with repairing and sourcing parts for your vehicle, such as replacing its battery or fixing electrical problems, are higher.
Other costs, such as legal fees or hiring a replacement vehicle while your own is getting repaired, have also increased as a result of inflation.
This has meant insurers have had to raise premiums so they can cover the costs of the insured losses.
Why has my insurance increased above inflation?
Unfortunately, a lot of the costs involved with paying out for claims have increased above inflation.
ABI’s research shows that average paint and material costs have increased by nearly 16% and courtesy car costs for repairers have increased by around 30%. These two examples show that costs have increased far higher than inflation rates; the peak inflation rate was 11.1% in October 2022.
Can we expect insurance premiums to decrease now that inflation rates are coming down?
Not necessarily. The price increases outlined above are unlikely to fall. Although there has been a decrease in the inflation rate, this doesn’t mean that the prices of goods and services are falling; it just means that they’re increasing more slowly.
Are there any other factors that are affecting insurance premiums?
Yes, there are a number of other factors that are increasing insurance premiums.
Over the last couple of years, there have been a number of supply chain issues, meaning that some car parts are taking longer to source. These delays have a knock-on effect by increasing costs for the insurer. For instance, if a part cannot be sourced for a few days, the vehicle cannot be repaired, which means that insurers must pay for a customer’s courtesy car for longer.
In addition to this, in general, prices for repairs have increased as technology has improved. This is because newer vehicles are more sophisticated and often include cameras, sensors and screens that are more expensive to repair and replace than older vehicle parts.
I’m taking car insurance out for the first time and it’s really expensive. Has it always been this way?
There are a number of factors involved with calculating risk. If you’re a new driver – especially one in your late teens or early twenties – you might find that your insurance premiums are quite high. This is generally because you haven’t built up a no claims bonus (NCB), which essentially acts as “proof” that you’re a relatively low risk to insurance providers.
In addition to this, from the 1st January 2022, the Financial Conduct Authority (FCA) banned insurers from providing new drivers with discounted policies as the additional cost was often passed onto loyal customers who had stayed with their insurance provider for a number of years.
This means that cover for your first year or two of driving might be more expensive than individuals who were in your position a few years ago.
Is it still worth shopping around for cheaper premiums when I renew?
Although the 2022 FCA regulations have reduced your need to shop around, it’s usually still wise to do so as you can sometimes get a better deal this way. You might find, however, that the cost savings for doing so aren’t as high as they used to be.
How can I reduce my insurance premiums?
It’s usually better to focus on ensuring your insurance policy provides adequate cover for your needs. Focusing on price could mean that your policy doesn’t include cover for things that are important to you, meaning that you end up having to pay out of pocket for these extra aspects when you need to make a claim.
That being said, we have a number of tips for those who want to save on their insurance. Read our blog of more than 20 simple steps to reduce your car insurance premiums and save money.
Get tailored car insurance from Adrian Flux
If you’re in need of car insurance now, we would suggest getting a quote from a specialist insurance broker like us. We compare quotes from 30 insurers and make sure we know your exact needs so you don’t waste money and only pay for the cover you require.
As a specialist insurance broker, we are also able to cover a wide range of vehicles, from standard cars to classics, imports and modified vehicles. Call us on 0800 369 8590 for a quote, or book a callback for a quote.