Why is my car insurance so expensive?

Many UK motorists feel they’re paying over the odds for their car insurance. But why is that? How are premiums calculated? And are there ways to bring down the cost?

Many UK motorists feel they’re paying over the odds for their car insurance. But why is that? How are premiums calculated? And are there ways to bring down the cost?

Kate Hughes
Insurance expert
minute read
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Last Updated 18 FEBRUARY 2022

Why is the cost of car insurance so high?

There’s a few different reasons why the cost of car insurance is so high, including:

A rise in Insurance Premium Tax
Insurance Premium Tax (IPT) - a tax that applies to a wide variety of insurance products - rose from 10% to 12% in 2017. It doesn’t sound like much of a hike, but if your premium is already £1,000 or more, as it can be for younger drivers in particular, you’re now paying at least £120 in IPT alone, every year.

And when other factors cause the underlying cost of car insurance to rise, the increase in Insurance Premium Tax only amplifies these costs.

Bigger pay-outs
Insurance providers use something called the Ogden discount rate to help calculate lump sum pay-outs for life-changing accidents. Changes to this rate in England and Wales in 2017 and 2019 mean larger pay-outs and consequently, higher premiums. 
Crime claims have become more expensive 
You might think that more sophisticated car security would lead to a reduction in car crime. Not necessarily. 

Today’s advanced vehicle technology has led to an increase in keyless car theft and more expensive repair bills. This, in turn, leads to increased cost of theft and repair claims. For example, the Office for National Statistics (ONS) found that the cost of damage in incidents of theft of, and from, vehicles rose from an average of £284 in 2010/11 to £357 in 2019/20.

Insurance fraud 
Dodgy claims and dishonest insurance applications, including fronting, cost the industry over £1 billion a year – adding an estimated £50 to annual household insurance bills.

Uninsured drivers 
Uninsured drivers make premiums expensive for the insured majority. In fact, the Motor Insurer’s Bureau (MIB) has reported that uninsured drivers cost the industry £400 million a year. This huge expense is then passed on to all insured drivers in their premiums.

Whiplash claims 
Rises in whiplash claims, estimated to cost insurance providers around £2 billion a year, have led to a government crackdown. The Whiplash Reform programme, which came into force on 31 May 2021, introduced a fixed tariff of damages for whiplash injury. It also bans settlements for whiplash claims being made without a medical report, and raises the threshold for insurance providers paying a claimant’s legal fees in successful claims. 

It’s hoped that the reforms will lead to lower premiums – insurance providers have to report to the Financial Conduct Authority on how they’ve passed savings on to consumers by 1 October 2023. 

A change in car insurance for women 
Historically, women have been offered cheaper car insurance than men for all sorts of reasons. But a ruling from the European Court of Justice in 2012 means car insurance providers are no longer allowed to take gender into account when deciding car insurance premiums. Women’s premiums have risen as a result.

What other factors can affect the price of my car insurance?

We know that a huge number of factors affect the cost of your car insurance and while plenty, like those above, are nothing to do with us as individual drivers, personal circumstances still account for most of the difference in premiums between one driver and another. 

The higher the accident risk, the higher your insurance premium is likely to be. Risk factors include:

  • Your age. Young drivers typically pay more for their car insurance than older, more experienced, drivers. According to our figures, the average annual premium for drivers aged under 17-24 is £1,225[1].
  • Your postcode. Some areas are considered at higher risk of theft and vandalism than others. An inner city suburb car will probably cost more to insure than one from a rural postcode, for example.
  • Your job title. If your occupation is considered high risk, you could end up paying more. For example, a labourer might have a higher premium than a secretary. 
  • Your car insurance group. Insurance providers assign different makes and models to different groups based on risk. Generally, the higher the group your car is in, the higher your premium will be.

[1]51% of young drivers between 17-24 years old could achieve a quote of up to £1,225 for their car insurance based on Compare the Market data in December 2021.

How can I get cheaper car insurance?

There may be ways of cutting your car insurance costs, including building up a good no claims discount. If you’re a younger driver, black box telematics insurance could be a good option.

Car insurance is an unavoidable expense, but shopping around can still make one of the biggest differences to the price you’ll pay. So why not see if you can save money on your next premium by comparing with us?


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