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Why is my car insurance so expensive?

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

Written by
Kate Hughes
Insurance expert
Last Updated
24 FEBRUARY 2023
6 min read
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Why is my car insurance so high?

There are several reasons why the cost of car insurance is high. Some are external factors that you can’t do much about. These include:

Rising claim costs

The cost of car insurance claims has risen over the past year thanks to higher vehicle repair costs and supply chain issues, along with an increase in the value of second-hand cars.

According to the Association of British Insurers (ABI), energy inflation has added more than £70 to each repair, while paint and material costs have gone up by nearly 16%.

Another reason for increased costs is car security. Even though you might expect more sophisticated vehicle technology to bring down car crime, it’s actually led to an increase in keyless car theft, which is pushing up premiums.

Insurance Premium Tax (IPT)

IPT is a tax levied on most insurance products. Between 2015 and 2017, it jumped from 6% to 12%. So 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.

Serious injury compensation

Insurance providers use something called the Ogden discount rate to help calculate lump sum pay-outs for life-changing accidents. This can go up or down and has a direct impact on the cost of your cover.

Insurance fraud

Dodgy claims and dishonest insurance applications cost the industry over £1.1 billion a year – adding an estimated £50 to annual household insurance bills.

One type of car insurance fraud is fronting, where someone (often a parent or more experienced driver) claims they’re the main driver on a policy to get a cheaper premium. Fraudulent whiplash claims also affect insurance rates, although it’s hoped that a government crackdown on this will lead to lower premiums.

Uninsured drivers

Motorists driving illegally without insurance don’t pay a premium, so it’s left to other drivers to foot the bill. In fact, the Motor Insurers’ Bureau (MIB) has reported that uninsured drivers cost the industry £500 million a year. This huge expense is then passed on to all insured drivers in their premiums.

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

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. Under-25s tend to pay the highest premiums as they’re more likely to be in an accident. The cost of insurance generally falls as you get older and more experienced.
  • 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.

Why is car insurance so expensive for new drivers?

New and young drivers typically pay more for their car insurance than older, more experienced drivers because they’re statistically more likely to make a claim. Drivers who are less skilled behind the wheel pose more of a risk in the eyes of insurance providers. 

According to our figures, the average annual premium for drivers aged under 17-24 is £1,354[1]

[1] 51% of young drivers between 17-24 years old could achieve a quote of up to £1,354 for their car insurance based on Comparethemarket data in November 2022.

Why has my car insurance gone up after auto-renewal?

The cost of your car insurance can go up for a number of reasons if you let it renew automatically, but it’s more likely if you’ve had an accident or received points on your licence, for example. Economic and market factors, like inflation, can also make a difference.

That said, it could just be that you’re getting a poor deal when your car insurance auto-renews, so be sure to shop around to see if you can get a better price elsewhere.

Previously, insurance providers were allowed to increase prices on renewal to subsidise cheap introductory rates for new customers. But you should no longer be penalised for sticking with the same provider after the practice of ‘price walking’ was banned by the Financial Conduct Authority (FCA) in January 2022. Even so, you’re still likely to save money by comparing car insurance quotes.

How can I reduce my car insurance?

Car insurance is an unavoidable expense and you can’t control many of the factors that affect the cost. But here’s what you can do to help reduce your premiums:

  • Consider black box, or telematics, insurance – a device is fitted to your car, or you download an app to your phone, that monitors your driving habits. If you drive safely, you’re likely to be rewarded with cheaper insurance when you renew your policy.
  • Build up a no-claims discount – for every year you drive without making a claim, you’ll receive a discount on the following year’s premium.
  • Pay a higher voluntary excess – just make sure you can afford to pay it alongside the compulsory excess if you make a claim.
  • Limit how much you use your car – can you car-share or work from home on some days? Reducing your annual mileage can save a few pounds.
  • Drive a less powerful car – engine size is one of the factors insurance providers take into account when working out the cost of your premium. Cars with lower engine capacities are generally cheaper to insure than high-performance vehicles.
  • Shop around – when your policy is up for renewal, don’t assume your new quote is the best you can get. Shopping around can 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?

See more tips for getting cheaper car insurance.

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