Hey! Why the price hike?

In July 2023 The Guardian ran an article that said in the UK drivers have been shocked as car insurance costs have soared by up to 90%. And that’s even for drivers with no accidents, points or anything else that would increase their risk.

The Guardian went on to report that the average car insurance quote increased by 34% in the year to May, according to the market research firm Consumer Intelligence. A typical policy now costs £2,145 for under-25s, £850 for the 25-to-49 age group, and £568 for over-50s.

It’s become really noticeable how quickly insurance premiums are rising, for home, travel, pet and especially car insurance. So what’s behind it? Could the insurance industry be using the cost of living crisis to also increase their profits? Some insurance experts say car insurance has slim profit margins, and that many firms were caught out during 2022 by the steep rise in claims costs and are making up ground with higher premiums.

The insurers have a list of reasons they say are behind the hikes in prices:

• Rising energy costs: We’ve all felt the increases in energy costs and the insurance companies have had to pay too. When it comes to car repairs there’s been an increase in energy bills of 300% for repairers. They didn’t qualify for government support that was given to households and have had to absorb soaring energy prices
• Parts are more expensive: According to the Association of British Insurers (ABI) paint and material costs are up 16% on average in the last quarter, not least caused by the rapid increases in the cost of transporting and manufacturing parts for cars. Another big cost for modern cars is all the electronics. Microchips, make up about a third of the cost of modern-day vehicles, and they remain in short supply, which inevitably pushes up their cost
• Higher prices for second-hand cars: Second-hand cars have been holding their value, partly because of the lack of supply of new cars. But because second-hand cars are worth more, of course it costs more to insure them. It currently costs insurers more to replace written-off cars and the costs of providing courtesy cars has risen by around 30%, so these are costs the insurers are looking to pass on
• New insurance rules don’t cover fees: In 2022, consumer protections came into place that banned insurers from charging existing customers more than new customers. It was claimed this would end the so-called ‘loyalty tax’ on motorists once and for all. But it turns out there was a way around that: the new rules applied only to premiums, not to fees. So insurers have been trying to grab back revenues and limit the impact on their bottom line by hiking fees. Consequently, you’re probably paying higher renewal and set-up fees. And you’ll likely be charged extra for cancellation fees too
• More loopholes in regulations: Under the pricing rules issued by the Financial Conduct Authority in 2021, called the General Insurance Pricing Practices (GIPP), it turns out that the rules aren’t as watertight as perhaps intended. There’s plenty of evidence that existing customers are still paying higher premiums than new ones when they come to renew their policy, rolled over on auto-renewal for another year at a higher price if left unchallenged
• Change in circumstances? If you’ve made a claim or you’ve changed address since you last signed up for a policy, you’ll be charged a different, and probably higher, price than your existing policy when you come to renew.

So what can you do to cut your insurance premiums?

One thing to do is to make sure you don't have auto-renewals turned on. That will stop your insurer rolling you over to another year at a new higher price before you have a chance to see what better deals might be out there. Consider the following:

• See what else is out there: Even if you see a price that looks pretty good for the next period of insurance, it often pays to see what else is around. Use some time before the renewal is due to find a better price
• Timing matters: It turns out that there is an optimum time to be looking for the best price - about 21-23 days before the renewal date. That’s when you’re most likely to find the best price elsewhere, or be able to negotiate the best deal with your existing provider
• Timing really matters: Also, insurers dynamically adjust premiums according to how many people have applied for quotes that day, as well as their demographics. So, if a lot of new drivers apply for a policy on the same day, it’s likely that prices will be rising. Searching during the day may get you a lower premium than searching in the evening
• Pay premiums annually: Not always easy, or possible, financially, but if you’re able to pay for your premium upfront in one go, you could save 10-20% on the cost
• Make sure you're on the electoral roll: Insurers use it to check your identity and if they have to make more effort to check on who you are, they will pass on the cost
• Get a Black Box deal: If you can get a telematics connected deal, it may result in a lower premium. It involves having a box fitted to your car that monitors your driving, although The Guardian reported that these deals are getting harder to find, bad news for young drivers.

Take control

At Rightly, we’ve developed a better way to renew your insurance premiums, not just on cars but on any insurance.

Rightly Save is our new service that automatically finds all your insurance policies and presents them to you in a single place, complete with renewal dates and the type of policy. We’ll set up automatic reminders so you get plenty of notice of all your insurance renewals, whether for car, home, travel, pet or any others you may have forgotten about - at just the right time to find the best deal. Then, you’ll have a chance to find a better deal before your existing insurer rolls you into a new year and a new higher price.

Rightly Save is free to use, and it’s quick and easy.