Why is car insurance so expensive?

Find out why car insurance premiums are so expensive

By Emily Sullivan Wednesday 14 October 2020

Despite a decrease in the average premium, many of us still think our car insurance is too expensive. Find out how premiums are calculated and how you can get a cheaper deal

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Car insurance can be a major expense, and for some it can reach near or even into the thousands for annual cover. If this is the case, it’s likely because insurers consider you a high-risk driver.

Your insurance provider determines this risk by considering certain factors, like your age, job title, postcode and the car you drive. But other drivers have an effect on your premiums too - things like fraudulent claims and uninsured drivers hike up the cost of everyone’s insurance.

Read on to find out what exactly makes car insurance so expensive, and how you could save money when looking for a quote.

How has the Coronavirus impacted car insurance prices?

The coronavirus has had a major impact on car insurance – with many people being forced to stay at home, far fewer vehicles have been out on the road. ABI reported that the current average price for comprehensive motor insurance stands at a four-year low and our data confirms this. The average car insurance premium cost just £479 during the first half of 2020, the lowest it's been since 2014*. The number of motor claims and pay-outs also decreased.

However, with roads getting busier again, and other factors remaining like rising vehicle repair costs and personal injury costs, car insurance premiums could rise again. Find out more about how coronavirus has affected car insurance.

* Drivers holding a full UK licence with a fully comprehensive policy where the main driver is the only driver. MoneySuperMarket data, accurate as of September 2020.

Why is car insurance more expensive for young drivers?

Car insurance companies take age into account when deciding on your premiums, and cover for young drivers (aged 17 to 24) is 24%* more expensive than for older motorists (aged 50-65+). This is because they are statistically more likely to put in a claim

In other words, young drivers are higher claim risks, so they can often pay more than double the average car insurance premium. The average fully comprehensive policy costs young people aged 17 to 24 £1,835** per year.

How does age affect price

* Drivers holding a full UK licence with a fully comprehensive policy where the main driver is the only driver. MoneySuperMarket data collected Jan – June 2020, accurate as of September 2020.

How does occupation affect car insurance?

Your occupation can also push up the cost of car insurance as some jobs are considered riskier than others. A tree surgeon, for example, will likely pay more for car insurance than an accountant.

This won’t always be the case however, as a range of other factors are also taken into account.

If you drive your car as part of your job, you may need a specialist business car policy, otherwise the insurer could refuse to pay any claims you make.

How does occupation affect car insurance

Does where I live affect the cost of my car insurance?

Location is one of the most important factors insurers consider when determining car insurance prices, with drivers in some regions paying more than double the cost of others. For example, the average cost of car insurance in London sits at £1,088, whereas drivers in Scotland pay £598 on average*.

How does location affect car insurance

Underwriters will study the statistics in your local area to work out how much of a risk your postcode is. They look at things like:

  • Traffic density
  • Population density
  • Crime rates
  • Number of claims in your area (including fraudulent claims)
  • Number of accidents in your area
  • High-risk road systems

*Based on all comprehensive policies sold between January and June 2020, where the customer held a full UK driving license and was the main and only driver. MoneySuperMarket data accurate as of September 2020

How does insurance fraud make car insurance more expensive?

Unfortunately, it’s not just you and your driving that affects the price of your car insurance premium. The way other drivers drive and make claims will affect the cost too.

Insurance fraud is a big problem in the UK and dishonest ‘crash-for-cash’ whiplash claims, are particularly challenging for insurers.

Whiplash claims

The number of claims is increasing, with the ABI reporting there being 1,500 claims made a day, many of which are fraudulent. But as whiplash is almost impossible to disprove, insurers usually end up paying out, and it costs the average driver an additional £90 on their insurance premium.

Data from the ABI shows that since 2005 personal injury claims are around 40% higher, while road accidents have fallen by nearly 35%. Since 2018, the law was changed to help stop fraudulent whiplash claims – and whiplash reforms have been rolled out since.

*ABI data

How do uninsured drivers affect the price you pay for car insurance?

Many people get behind the wheel without car insurance, and that makes insurance more expensive for everyone else.

When an insured driver is involved in a road incident with an uninsured driver, someone has to pay out – and that someone is the underwriter of the insured driver. Because of this, car insurance premiums are higher for everyone.

The Motor Insurer’s Bureau (MIB) reported that more than two million* uninsured vehicles had been seized in the UK since 2005. To cover the cost of pay-outs involving an uninsured party, honest motorists are paying more for their annual car insurance.

*MIB data, January 2020

What other factors affect the cost of car insurance?

  • Brexit: Economic uncertainty has caused a fall in the value of the pound, increasing the cost of imported cars and replacement parts – which in turn has increased claim costs. Mintel reported that this has also had an impact upon the upward trend of motor insurance premiums in the second half of 2019*
  • The increase in insurance premium tax to 12% in 2017: IPT is added as a percentage to the total cost of an insurance premium. It’s an indirect tax which gets imposed on insurance providers, but most providers pass these costs on to customers in the form of higher prices
  • The Ogden discount rate: This helps insurers work out how much compensation they have to pay for life-changing injuries. In 2017, it was cut from 2.5% to -0.75%, which meant larger lump-sum pay-outs and therefore higher premiums. In 2019, this went back up to -0.25%
  • Rising claim costs: According to the ABI, the cost of claims is higher than ever**. Today’s advanced vehicle technology has led to an increase in keyless car crime and more expensive repair bills. This in turn has led to increased rates of theft and repair claims – following an 8% increase in 2018, claims costs are estimated to have increased by a further 3% in 2019 to £8.9 billion. The average claims cost reached £3,436 in Q2 2019, a 29% increase over the last four years (Mintel Report 2019)

*Mintel Motor Insurance report, March 2020

**ABI data, September 2020

How to save money on your car insurance?

  • Don’t auto-renew: Most motor insurance companies take the opportunity to raise your premium when you renew automatically and you miss out on cheaper deals you could find by shopping around
  • Increase your excess: Insurers are likely to reduce the cost of cover if you're willing to increase your voluntary excess
  • Take out telematics: Insurers can monitor your driving habits with telematics hardware, so responsible drivers earn lower premiums
  • Drive fewer miles: The less time you spend on the road, the lower the chances of you being involved in a road accident
  • Add a named driver: Adding an experienced driver to your policy tells insurers you won’t be solely responsible for the car, so they’ll reduce the price
  • Buy a sensible car: Smaller, less powerful cars are cheaper, safer to drive and less attractive to thieves, so the overall risk for the insurer is lower
  • Pay annually: Paying an annual lump sum might mean a greater initial expense, but insurers charge more when you spread the cost over monthly payments
  • Keep your car secure: Factory-installed locks and immobilisers can reduce the risk of your car being stolen or vandalised, as can keeping it stored in a locked garage
  • No-claims discount: Most insurers will offer no-claims discount to drivers that don’t claim on their car insurance

Although you can’t control all the factors considered when insurers decide car insurance premiums, there are still steps you can take to help cut the cost. Check out our guide on how to find cheap car insurance to find out how.

Compare car insurance

The easiest way to find cheaper car insurance is to compare quotes with MoneySuperMarket. All you need to do is tell us a little about yourself and your driving history, and we will show you our selection of the best deals.

You’ll be able to compare policies by the overall monthly and annual cost, the cover you’ll get and the excess you’ll need to pay to make a claim. Once you’ve found the deal you want, just click through to the provider’s website to finalise your purchase.

As with any kind of insurance, the cheapest option isn’t always the best. We recommend you try to balance the cover you’ll get with the overall cost of your policy, so you don’t end up over- or under-insuring yourself.

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