Average car insurance prices rise for the first time in 18 months

Car insurance prices have risen for the first time in 18 months, according to Confused.com’s latest car insurance price index.

The new figures* show the average cost of car insurance has increased by £37 (five per cent) over the past 12 months  – the first annual increase since 2017.

The news comes just two months after the Association of British Insurers (ABI) declared that the cost of car insurance had fallen to a two-year-low.

The Confused.com car insurance price index analysed over six million quotes for fully comprehensive cover and found that, on average, UK drivers pay £789 for car insurance - a figure that’s £257 more expensive than it was 10 years ago.

>>> HonestJohn.co.uk cheap car insurance guide

The data shows that motorists aged 49 are now paying £289 more than they were when they were 39, while those aged 71 and over are paying £201 more than 10 years ago when they were aged 61.

The average price of car insurance for 17-year olds accelerated by £158 in the past 12 months, making the average cost of a policy for drivers this age £2047.

Men pay more than women, with the difference between the two reaching almost £90, on average. The cost of car insurance for men has increased by £34 over the past 12 months to £827; however, female drivers experienced the highest increase, and are now paying £741 – £40 more than 12 months ago.

Young drivers are also counting the cost, with the average price of car insurance for 17-year-olds accelerating by £158 in the past 12 months, making the average cost of a policy for drivers this age £2047. Confused.com says this is the first time the price of car insurance reached more than £2000 for young, new drivers since early 2018.

Inner London is the most expensive region in the UK for car insurance, with drivers paying an average £1214, while motorists in central Scotland and the north east pay £681 and £601 respectively. 

Llandrindod Wells, in Wales, has seen prices accelerate at a rapid pace. Previously it has been one of the cheapest areas in the UK for car insurance, but has experienced a £166 (32 per cent) increase over the past year. Drivers in the region now pay £688 for their car insurance, on average, which is the most expensive price paid in the area, on record.

Why are insurance prices going up?

Changes to compensation payouts

Changes to the Discount Rate (Ogden rate) in 2017 has forced insurance companies to pay out much more in compensation.

When car accident victims suffer life-changing injuries, the amount they receive is intended to reflect the interest they could earn by investing the money over many years. The calculation that’s used to finalise the compensation amount is called the Discount Rate. 

The Discount Rate was lowered from 2.5 per cent to -0.75 per cent to ensure that the compensation received by the road accident victims is enough to support them for the rest of their life. From August, the rate will be adjusted to -0.25 per cent.

Insurance Premium Tax

Insurance Premium Tax (commonly known as IPT) has jumped from six to 12 per cent since 2015. And while the Government has said IPT is a tax on insurers and not drivers, many insurance firms have been accused of passing the higher costs on to their customers. 

Loyalty tax

In 2017 the Financial Conduct Authority (FCA) launched the auto-renewal bill, which forces insurers to clearly show the previous year’s premium at each renewal so motorists can easily compare it to the new price. However, despite the new rules, millions of drivers allow their policy to roll-over without shopping around for a cheaper premium.

Research from Confused.com finds drivers who received their renewal notice in Q2 2019 saw their price increase by £50, on average. Worryingly, more than half (52 per cent) of these went on to renew with the same insurer, despite the price increase. 

*Confused.com’s latest car insurance price index, powered by Willis Towers Watson, is based on more than six million quotes every quarter. Unless otherwise stated all prices referred to are for comprehensive cover.