Why is my car insurance so expensive?

Despite a slight fall in the average cost of premiums, UK motorists still feel they are paying over the odds for their car insurance. So how are premiums calculated? And are there ways to bring the cost down?

Despite a slight fall in the average cost of premiums, UK motorists still feel they are paying over the odds for their car insurance. So how are premiums calculated? And are there ways to bring the cost down?

Daniel Hutson
From the Motor team
minute read
Do you know someone who could benefit from this article?
Posted 8 SEPTEMBER 2021

Why is the cost of car insurance so high?

There are several reasons why the cost of car insurance is so high, including:

A rise in Insurance Premium Tax 
In 2017, Insurance Premium Tax, a tax which applies to a wide variety of insurance products, rose to 12%. Meanwhile, a higher rate of 20% is applicable to some vehicles that are bought as new from a dealership. As various other factors are causing the cost of car insurance to rise, an increase in Insurance Premium Tax only amplifies these costs. 
A cut to the Ogden discount rate 
The Ogden discount rate, which applies to compensation pay-outs for life-changing accidents, has fallen from 2.5% to -0.25% in recent years. This has meant larger lump-sum pay-outs and, therefore, higher premiums. 
Claims have become more expensive 
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. 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 £406 in 2017/18.

Insurance fraud 
The ABI claims there’s ‘one scam every minute’, made up of dodgy claims and dishonest insurance applications, which cost the industry £1.3 billion.

A rise in whiplash claims 
Over the last decade, whiplash claims have risen by around 50%, costing insurance providers around £2 billion a year. Plans by the Ministry of Justice to crack down on whiplash claims and cap compensation were delayed until 2020. These changes will introduce a fixed tariff of damages, which courts will be able to award for claims relating to pain, suffering and loss of amenity owing to a whiplash injury after a road accident. They will also introduce a ban on settlements being made when whiplash claims are made without a medical report.

Uninsured drivers 
Uninsured drivers
make premiums expensive for the insured majority. In 2019, the Motor Insurer’s Bureau (MIB) reported that uninsured drivers cost the industry £400 million a year. This huge expense is then passed on to insured drivers in their premiums.

The rise of a ‘claim culture’ 
In recent years, the UK has seen a ‘claim culture’ lead to a rise in personal injury claims. This is partially due to a large push from personal injury lawyers who are seeking easy cases to make money quickly. These personal injury legal firms are often buying referral details of UK motorists, and then contact them in an attempt to find claims to pursue. That’s why you’ve probably received a call out of the blue, asking (or even telling you) if you’ve been in an accident that wasn’t your fault.

However, the UK government have plans to ban these referral fees for personal injury claims. This should lead to a fall in claims being made, with any savings potentially passed onto UK motorists in their insurance premiums.

A change in car insurance for women 
After a new gender ruling from the European Court of Justice in 2012, car insurance providers are no longer allowed to take gender into account when deciding car insurance premiums. Women were historically offered cheaper car insurance than men, but this has risen since the rules changed.

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

Lots of factors influence the cost of your car insurance, including your individual circumstances. 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 latest Young Drivers research in November 2020, the average annual premium for 17-24 year olds is £1,063.**
  • Your postcode. Some areas are considered at higher risk of theft and vandalism than others. For example, an inner city suburb car will probably cost more to insure than one from a rural postcode.
  • 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. Generally, the higher the group your car is in, the higher your premium will be.

**50% of young drivers between 17-24 years old could achieve a quote of up to £1,063 for their car insurance based on Compare the Market data in June 2021.

Are insurance premiums going up?  

Based on our latest Premium Drivers Report, car insurance premiums have fallen by £126 since the UK first went into lockdown due to coronavirus, in March 2020. The average premium now stands at £629 - the lowest that premiums have been in nine years. Whether premiums will rise, once motorists are driving at normal levels again, remains to be seen. 


How can I get cheaper car insurance?

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

And just by shopping around and comparing quotes, you could save up to £267*** on your premium.

Car insurance is an unavoidable expense. So why not see if you can save money on your next premium by comparing with us.

***Based on Online independent research by Consumer Intelligence during May 2021 50% of customers could save up to £267.92 on their car insurance premium.

Looking for a quote?

Compare car insurance in minutes to see if you can save

Get a quote
Compare car insurance Get a quote