The cost of insurance, and the perceived shadiness of many insurers, have been a favourite grumbling topic for years. Companies seem quick to increase premiums but slow to reward loyalty and careful driving. We look at the reasons our premiums are so high.
Some of the reasons our monthly or annual payments increase are so well known that they are barely questioned anymore; some are understandable in the context of the general economic climate, and some seem unjustifiable, if not highly questionable.
Living in expensive times: the economic climate
Some aspects of our insurance bills are forced up by other price increases. In some ways it's no difference to what we see in our supermarkets: just as increases in fuel prices force up transportation costs which, in turn force up product retail prices, increases in costs to insurers mean they must increase premiums to maintain their profit margins. Here are a few things that feed into your pricey premiums.
Increased repair costs
The Association of British Insurers claims that the cost of repairing cars has risen by 46% over the last year or so. That inflation knock-on effect we mentioned has increased the cost of manufacturing and distributing spare parts as their makers are faced with higher fuel, energy and material prices.
Insurance premium tax
When it first appeared in the 1990s, this tax on our premiums was 2.5 per cent; it's now 12%.
Car prices
As we covered in a recent blog article, Covid, semiconductor shortages and supply chain interruptions have led to big increases in the prices of both new and used cars. This, of course, means that the values covered by insurance, and the risk to insurers, are also higher.
The old, old stories: constant price factors
The items in the previous section partly explain why premiums have risen so sharply in recent years. Not all of the reasons given for increases in insurance charges are as volatile as those above. Some are constant, but that doesn't mean we're any happier about them.
Fraud
There is no doubt that insurance fraud is a big expense to insurers. Whether it's the faking of a car theft or the pretence of a non-existent injury from an accident, if an insurer can't prove that a claim is bogus they may have to pay out a great deal of money. Someone has to bear that cost and, of course, it is us motorists rather than our insurers' shareholders.
Uninsured drivers
Another fact of life that we can't really dispute. This one is a bit of a vicious circle: uninsured drivers force up the cost of our premiums, but then the high price of insurance is one of the reasons some people risk driving without insurance.
If uninsured drivers are involved in accidents someone has to foot the bill. Guess who.
How lifestyle affects our insurance bills
If it's all starting to feel as if we are powerless to reduce insurance costs, it's not quite that bad. There are some things within our control that may limit the expense. Sadly, those things also place constraints on our lifestyle choices and some are not easy to change.
The make and model of cars we drive
Basically, the more expensive the car, the more it costs to insure. Engine power is also a factor.
When you go shopping for a car, try to find out which insurance group it falls into. Generally speaking, the lower the group number, the cheaper the insurance. While you may covet a premium car brand, insurance should be a factor when deciding if you can actually afford to own one.
Where we live
If you're unfortunate enough to live in a neighbourhood with above average levels of crime, it's a safe bet that your insurer has set your premiums a bit higher to cover the potentially higher risk. Also, if your home has no garage, drive or other off-street parking area, you'll probably pay more.
How we drive
If you're involved in car accidents - even accidents that aren’t your fault, your insurance premium will be higher as a result. If you get driving convictions or points on your licence, again, your car insurance will be more expensive.
What we do for a living
In the eyes of an insurer, if your job means a lot of driving, you are a higher risk. For example, if you use your vehicle all day to make deliveries, you are seen as more likely to have an accident than someone who works in one place and only has to drive a modest distance to and from work.
You may or may not be comforted by the fact that you could save a bit on your premium when you retire.
Just not fair
We can, reluctantly, just about swallow the unpalatable fact that general economic factors, and the lifestyle choices we make, do justify a degree of price increase in our insurance. There are other factors, however, that leave an even nastier taste in the mouth.
Age
Sadly, if you are a young driver or a newly qualified driver, you will pay more. You may have passed your test with flying colours; you may drive the cheapest, most underpowered runabout you could find; you may be the most cautious and observant driver to ever sit behind a steering wheel. It doesn't matter: they will fleece you, regardless.
Statistics show that young drivers as a demographic have a disproportionately high number of accidents. This means that young drivers, including the many careful ones, pay the price. Sorry, kid.
An odd way to repay loyalty
Until recently, many insurers charged existing customers more to renew their policies. This "loyalty premium" helped subsidise tempting prices offered to attract new customers. Yes, it does seem like a funny way for the insurers to thank us for our repeated custom and the fortune in premiums we've paid them over the years.
We have some good news and some bad news. The good news is that the Financial Conduct Authority banned this cynical practice in 2022. The bad news is that many insurers have made up the shortfall by hiking prices in general.
How to get cheaper car insurance
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Shop around instead of auto-renewing.
Your insurer should send you a renewal notice a few weeks before your policy expires. Use that time to compare available deals. If you can shop around before you receive your renewal notice then that's even better as many insurers will charge a little more if you leave it until the last moment to buy your policy.
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Increase your excess.
Increasing your voluntary excess, the amount you pay towards a claim, you can bring down the cost of premiums. However, make sure the excess you agree to is affordable in case you do need to claim.
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Ask your insurer about telematics/black boxes.
This technology monitors your driving and enables your insurer to tailor your insurance accordingly. Basically, the safer your driving, the less you could pay.
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Pay your premium as an annual lump sum.
Paying your insurance in one go will usually save you money.
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Just buy the insurance you need.
Don’t be upsold by eager salespeople who will offer you all kinds of additional covers and benefits. They all add to the cost and many people never use them.
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Drive safely!
Sorry to state the obvious, but there is every reason to remind ourselves of this. Accident stats make grim reading. If you drive carefully, and avoid even minor accidents, you will build up your no-claims bonus. That can make a very big difference to the cost of your premiums. Driving safely can also be the difference between a long life and a short one.
Insurance and your private number plates
While we're talking about insurance, we'd better mention the implications it can have for your private number plates.
Don't write your car off too soon
If you have an accident, it is very important that you make it clear to your insurer, before they pay out, that, whatever happens, you want to keep your private registration number. If you claim and your insurance company writes the car off and pays you, then the registration number will belong to them unless you have clearly staked your own claim to it before that point.
