Car insurance costs: why renewal quotes have fallen to 7-year low while new policy prices are rising
Renewal quotes fall while new policy costs jump following end to insurers’ ‘price walking’
Drivers paid an average of £416 for an annual policy in the first three months of the year, according to figures from the Association of British Insurers (ABI).
That is a 5% reduction on the same period in 2021 and represents the lowest average premium since the third quarter of 2015.
The figures seem to show that new legislation brought in at the start of the year to end the “loyalty tax” on customers has had an impact as new policy prices have risen while renewal costs have dropped.
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The new rules banned insurers from selling introductory offers that charged new customers less than a renewing customer would pay for the same policy. The Financial Conduct Authority said the move would save drivers a collective £4.2 billion over the next 10 years.
Industry observers warned that it was likely to simply push up new policy prices without affecting renewal costs. The ABI figures show that while new policy prices have climbed, renewal costs have also dropped and the gap between the two has widened.
The average premium paid for a new policy in the first quarter was £480, up by £34 on the same quarter in 2021, while the average for renewed policies was £375, down by £55.
The ABI said that changes to the Civil Liability Act in 2021 had helped to tackle the high number and cost of whiplash claims but that cost pressures on premiums continue, driven by everything from a shortage of skilled vehicle repair workers in the UK to the impact of various worldwide crises.
The average car can contain up the 3,000 semiconductor chips, and their shortage impacts on vehicle repair times, the ABI added.
The price of paint has also been increasing and vehicles are becoming increasingly sophisticated and more costly to repair, it said.
James Dalton, the ABI’s director of general insurance policy, said: “Like other sectors, motor insurers face rising costs.
“While it is going to be extremely challenging for these to be absorbed, insurers are doing all they can to keep prices as competitive as possible as millions of households cope with the cost-of-living crisis.
“As the FCA has said, the impact of their reforms to pricing rules introduced on 1 January this year could lead to some consumers paying higher prices if they used to benefit from significant new business discounts.
“For some it could still pay to shop around for the policy that best meets their needs.”