UK car insurance premiums fall but volatility ahead

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Motorists are now paying £539 annually for their car insurance policies after a 6% fall in the cost, according to the latest Car Insurance Price Index from Confused.com and Willis Towers Watson.

They say the 6% drop amounts to £36 less than 12 months ago, although a 5% rise in Q4 2021 indicates volatility in premiums for the year ahead.

The average cost of car insurance, after falling for four straight quarters, increased for the first time since the autumn of 2020 with a price rise of 5% (£25) in Q4 2021.

Tim Rourke, UK head of property and casualty pricing, product, claims and underwriting at Willis Towers Watson, commented: “The impact of motorists making fewer journeys due to the Covid-19 lockdown, combined with intense competition in the industry, caused prices to drop for 12 months through to the autumn of 2021.”

“The rise in prices since then most likely reflects the predicted volatility ahead of the new FCA pricing rules being implemented on 1 January, combined with claims costs increasing since lockdown restrictions eased.”

The index reported that the cost of comprehensive car insurance over the last three months increased across all regions in the UK.

Drivers in Central Scotland experiencing the sharpest quarterly rise at 8% (£33), with average premiums now costing £465, followed by Manchester and Merseyside, where drivers saw a 6% rise (£39).

The smallest quarterly increase of 3% (£9) was seen in Southwest England, nudging average annual premiums up to £355.

Manchester and Merseyside (£685) and the West Midlands (£655) continue to be the most expensive areas outside of London, and only marginally less expensive than average premium prices in Outer London (£686).

The Scottish Borders is the cheapest region for car insurance, where prices on average cost £342, followed by South West England (£355).

More locally focused data showed motorists in West Central London and Glasgow experienced the greatest quarterly increases, with a double-digit price rise in both areas at 10%, increasing their premiums to £1,079 and £525, respectively.

West Central London also remains the UK’s most expensive postcode for motor insurance, where drivers are paying on average £124 more than drivers in East London, the next most expensive postcode.

Despite a 6% quarterly rise in prices, Llandrindod Wells continues to be the cheapest town in the UK, with drivers paying an average bill of £326 at the end of 2021 for comprehensive car insurance.

The demographic that saw the greatest quarterly increase were young male drivers aged between 21 and 30 who saw their car insurance rise by 6 to 8%, taking the premiums of those aged 21-25 to £1,147 and £858 for those aged 26-30.

Male drivers aged between 17 and 20 are still paying the most of any demographic and now pay £1,480 on average after a 4% increase.

Rourke continued: “More pricing volatility is expected in the coming months, with insurers competing to maintain margins as they adjust to the new FCA fair pricing rules. How insurers respond to the new rules through pricing and product strategy will determine just how turbulent the next few months become.”

“Meanwhile, the pandemic will continue to put insurers under considerable pricing pressure as wholesale society changes evolve and disrupt the market, exacerbated by claims inflation potentially rising further in 2022 and the long-term impact of the whiplash reforms still unclear.”

Louise O’Shea, chief executive officer at Confused.com, commented: “The increases we’re seeing in car insurance prices are not unexpected. Before the pandemic, Brexit was already causing the price of claims to inflate due to the cost and length of repairs.”

“Now with these issues heightened by the pandemic and therefore putting further pressure on insurers, we can expect prices to inflate even further over the coming months, regardless of any impact the recent FCA changes may have.”

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Mark Dugdale is the editor of Claims Media. Mark welcomes articles, letters or feedback from readers and can be reached via mark.dugdale@barkerbrooks.co.uk