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?
Why is my car insurance so high?
A car insurance premium increase can be a shock for many of us. Unfortunately, there are several external factors affecting the cost of car insurance 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.
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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 car insurance.
Insurance fraud
Dodgy claims and dishonest insurance applications cost the country an estimated £3 billion a year. This adds an estimated £50 to annual household insurance bills.
One type of car insurance fraud is fronting, where someone claims another person (often a parent or more experienced driver) is 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 obviously 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 cause a car insurance increase?
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 postcode areas are considered at higher risk of theft and vandalism than others. If you live in an inner-city suburb, your car will probably cost more to insure than if you have 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 an office worker.
Your car insurance group
Insurance providers assign different car makes and models to different groups, based on risk. Generally, the higher the group your car is in, the higher your premium will be.
Find out what else can affect the cost of your car insurance premium.
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.
| Age groups | Annual premium |
| Young drivers: 17-24 | £1,861[1] |
| Older drivers: over 60s | £426[2] |
[1] 51% of young drivers between 17-24 years old could achieve a quote of up to £1860.62 for their car insurance based on Compare the Market data in June 2024.
[2] 51% of over 60s could achieve a quote of up to £425.78 for their car insurance based on Compare the Market data in June 2024.
Why did my car insurance rise after auto-renewal?
The cost of your car insurance can go up for a number of reasons if you let it renew automatically.
However, it’s more likely to go up if you’ve had an accident, made a claim or received points on your licence. Economic and market factors, like inflation, can also make a difference.
Or it could simply be that you’re getting a poor deal when your car insurance auto-renews. That’s why it’s always worth shopping around to see if you can get a better deal 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 costs?
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?
What factors could influence insurance costs in the future?
New technology is sure to have the biggest impact on future car insurance costs. Whether emerging technologies will lead to a reduction or an increase in insurance prices is yet to be seen.
The motor industry’s risk intelligence body, Thatcham Research, is investigating the risks and implications for car insurance in the future.
Data-sharing technology
Telematics technology has been around for a while. However, the increased use of on-board software to enable cars to collect and share data from their surroundings will gradually become the norm in all vehicles.
Insurance providers can use this valuable data to determine how well you drive. This could help reduce insurance costs across the board.
The flip side is that more sophisticated and valuable tech could raise car prices, and therefore the cost to insure them.
Autonomous vehicles
We’ve a while to go until vehicles are 100% autonomous, but the driverless car revolution is steadily on its way. Partially autonomous features, such as advanced driver assistance systems, lane control and collision avoidance, are already widely available.
AI (artificial intelligence) will play a big part in the future development of autonomous vehicles. The integration of AI algorithms and machine-learning models, for example, could be used to improve safety features and decision-making capabilities. This could enable driverless cars to handle complex driving scenarios without the need for human intervention.
If driverless cars are able to reduce human errors and lead to fewer accidents, insurance costs could come down. The main issue for insurance providers will be who is liable if an autonomous car causes an accident?
According to Thatcham Research, one of the biggest challenges for insurance providers and underwriters will be a shift from driver liability to product liability. Until this is clear, it’s impossible to say what impact driverless cars will have on insurance costs.
Frequently asked questions
What is the average car insurance cost in the UK?
According to the Association of British Insurers (ABI), the average cost of a car insurance premium for the first quarter of 2024 was £635 – a 1% increase on the previous quarter.
Will car insurance prices go down?
No one can say for sure if car insurance prices will come down in the near future. However, the ABI has recently revealed a series of steps the industry is taking to tackle rising insurance costs. These include:
- Greater transparency regarding vehicles that cost more to insure
- More rigid crackdowns on insurance fraud and uninsured drivers
- New initiatives to combat vehicle theft
- Calling for a graduated driving licence scheme for new drivers to help improve safety
- Mandatory inclusion of assisted safety features in new cars
- A broader, more robust repairs sector that can fix a wider array of vehicles, therefore bringing repair costs down.
At what age does car insurance go down?
As long as you’re claim-free, the cost of car insurance should start to drop once you’re 25. This is because, statistically, young drivers aged 17-24 are more at risk of being involved in a road accident.
Barring any claims, the cost of car insurance usually declines between the ages of 25 and 60. But you might find it start to creep up again once you’re over 70.
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Julie Daniels - Motor insurance expert
Julie is passionate about delivering a great customer experience and rewarding people for saving on their insurance through our loyalty and rewards programme. She’s spoken to the media, including outlets like Sky News and Capital FM, about car and home insurance, as well as our rewards scheme.