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Why is car insurance so expensive?

Cost of living crisis: Why car insurance premiums are so expensive

Alicia Hempsted
Written by  Alicia Hempsted
Sam Meadows
Reviewed by  Sam Meadows
10 min read
Updated: 16 Nov 2023

With premiums at record highs, it’s little wonder so many of us feel our car insurance is too expensive. This article will help you discover how premiums are calculated and how you can get a cheaper deal

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

Your insurance provider determines the level of risk you pose by considering certain factors, like your age, job title, postcode, and the car you drive. But other factors 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 exactly why car insurance is so expensive, and how you could save money when looking for a quote.

What makes car insurance expensive?

Car insurance premiums are increasing. According to analysis by EY, 2023 was a terrible year for insurers who paid out £1.10 in claims and operating costs for every £1 received in premiums. Sadly, this has pushed up prices for motorists.

The Association of British insurers says premiums are currently at their highest since it started tracking prices in 2012. Their car insurance premiums tracker showed that the average car insurance premium was £511 during the second quarter of 2023 – an increase of 7% on the previous quarter and 21% higher than the same period in 2022.

Insurance fraud, whereby criminals mislead insurers into paying out on false claims, is also a major issue for the industry and leads to everyone’s premiums increasing. Similarly, uninsured drivers have the same effect as, if they are involved in a road accident, the innocent party’s insurer is left to pick up the bill.

Increases in insurance premium tax or changes to the Ogden discount rate, which calculates personal compensation for injuries received in accidents, are also added to premiums.

Woman and child waving out of a car window

Personal factors affecting car insurance premiums

When calculating your premium, insurers will consider all of your personal details and assess how likely it is that you will make a claim. If they think your personal circumstances mean that you are more likely to claim, then they will deem you higher risk and quote you a higher price.

Some of the personal factors that will affect your premium include:

  • Your age

  • The value and age of your car

  • Your job

  • Where you live (your postcode)

  • Your driving record - points on your licence and past claims

  • How long you’ve been driving

  • Annual mileage

  • Where your car is kept overnight

Why is car insurance more expensive at renewal

Although less common than it once was, you may still find that you are quoted a higher price than the previous year when you come to renew your insurance.

New rules introduced by the regulator have stamped out the worst behaviour where insurers would charge loyal customers more over time, sometimes called the loyalty penalty.

But there are other reasons that your price might increase, including inflation or a change in your personal circumstances.

Why is car insurance so expensive for young drivers?

Young drivers in particular may be thinking: why is car expensive so expensive? Age is one of the most important factors when it comes to calculating premiums, because younger people are statistically more likely to claim on their car insurance.

In other words, young drivers carry higher claim risks, so they can often pay more than double the average car insurance premium.

Sadly there is no quick fix to this, but there are still some things you can do to bring down the price. Some policies are specifically designed for younger drivers and offer cheaper premiums if drivers agree to certain conditions, such as the monitoring of their driving by a ‘black box’.

Young drivers: 20-29 age group

Policy Type

Average premiums1

Comprehensive

£1150.01

Third Party Only

£1449.35

Third Party, Fire & Theft

£1568.56

1Based on the median annual price of third party, fire & theft car insurance policies sold through MoneySuperMarket in February 2024.

Older drivers: 60+ age group

Policy Type

Average premiums2

Comprehensive

£398.52

Third Party Only

£479.56

Third Party, Fire & Theft

£428.58

2Based on the median annual price of third party, fire & theft car insurance policies sold through MoneySuperMarket in February 2024.

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.

It is possible to tweak your job title a little in a way that may bring down your premiums. A “journalist” may be charged more than a “writer”, for example. However, make sure you are honest and do not mislead the insurer about what you do, as this could cause your insurance to be deemed invalid or even be considered insurance fraud.

Why is car insurance so expensive in my local area

When you’re shopping around for car insurance quotes, the price may seem extreme. Location is one of the most important factors insurers consider when determining car insurance prices, with drivers in some regions paying more than twice the cost of others.

Underwriters will study 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

While you are unlikely to move house in search of better car insurance premiums, make sure to update your insurer if you do move as it could lead to a better deal.

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 are 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 interest 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 well as keeping it stored in a locked garage.

No-claims discount

Most insurers will offer a 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 for more information.

Compare car insurance with MoneySuperMarket

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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