Driving Down The Cost

The stratospheric rise in car insurance has shocked many drivers - so where is that is happening, why it's happening and perhaps of most practical interest...how to drive your insurance premiums down.

Q: Why Is This A Bigger Issue Now?

A: Car insurance costs have risen by over 40% in the past year - streaking past the rise in general inflation and causing real problems for drivers, according to a recent report by Confused.com. They say that the average cost of car cover is £941, having risen by 43 per cent, or £284, over the past 12 months.

David Mendes da Costa, a principal policy manager at Citizens Advice, gave evidence to a Parliamentary Select Committee looking at the issue and said there was "a clear rise in the number of people who are coming to us for help who are unable to afford their insurance”.

He said the proportion of its advisers reporting that clients had cancelled car insurance had jumped from 5 per cent in 2022 to more than 50 per cent last year."

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Food Or Insurance

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He went on to say: "The people who are coming to us for help often are having to make genuine, impossible choices between whether to pay for their car insurance, which in some cases they are finding is unaffordable, or to put food on the table, “ he said. “We’ve had people come to us with food bank referrals because of the rising cost of insurance”

Q: Are Companies Profiteering from the Rise in Premiums?

A: While it can feel like the companies are making excess profits, the picture is more nuanced than that.

For instance, Direct Line which also owns Churchill, Privilege and Green Flag brands, reported an operating loss for 2023 of £189.5 million, which was a deterioration from a loss in 2022 of £6.4 million. It is now trying to make huge cost savings which are likely to lead to job losses.

It's also worth pondering a little talked about thing called the Combined Net Ratio. Car insurers’ net combined ratio, which shows claims and costs as a proportion of premiums, hit 109.5% in 2022, according to a report by the consultancy firm EY. Anything above 100% on this measure, which is adjusted for reinsurance, represents an underwriting loss.

EY predicts that this year performance to improve but it forecasts an industry wide net combined ratio of 100.4% - meaning that profit margins could be wafer thin,

Consumers are however, unlikely to feel sympathetic towards large insurances businesses.

In a hearing on Wednesday, Angela Eagle, Labour MP for Wallasey, spoke at the House of Commons Treasury select committee to say: “My constituents and many people that write to the committee feel that insurance is becoming more of a rip-off.”

Charlotte Clark, director of regulation at the Association of British Insurers, said part of the reason that the rise in prices looked “so significant is because it is coming off the back of the pandemic”, when the cost of insurance fell as miles driven, and accidents, plummeted.

Q: How Much Is Insurance Rising?

A: For a start, it depends on how you look at the numbers.

In fact, car insurance prices fell at the start of 2024 in the first quarter-on-quarter drop in more than two years.

But that was still up 43% from the same period last year,

Q: Why is insurance getting more expensive?

A: Insurance companies are blaming spiralling inflation in their claims costs — with car parts and second-hand cars became much more expensive

A very well meaning and probably good, piece of legislation may also have had unexpected consequences. The Financial Conduct Authority banned the so-called 'loyalty penalty' in January 2022 to stop insurers from offering better deals to new customers then those being offered to existing customers that renew. Some believe that this may have led to less pressure on insurance companies to offer new cut-price deals to entice customers to buy a new policy from them.

GlobalData’s 2022 UK Insurance Consumer Survey found that only 28.8% of motor insurance customers switched insurers at renewal which was down from 30.7% in 2021.

So How Do I Save Money?

Making Choices About Your Job Title

Legitimately tweaking your job title can save you £100s according to MSE which says that:

"An illustrator is often cheaper than an artist, an editor cheaper than a journalist, and a PA cheaper than a secretary.

MSE has a Job Picker tool and see if small changes to your job description could reduce your costs. Remember, never lie, as this would be considered fraudulent. Here is a link to it HERE - it is on the left hand side of the page for you to experiment with.

They also say that if you don't have a job, you face a potential fivefold jump in insurance costs by declaring you're unemployed. The same hikes don't apply to homemakers (housewives/househusbands). If that's you, say so to avoid a hike in costs.

The overriding advice is to be honest. Failure to do so is not only illegal, it can also invalidate any future insurance claim.

Excess Choices

If you chose to pay more of any loss yourself, known as the excess, you may be able to get a lower quote.

Black Box Insurance

Black box insurance - also called telematics - is a type of car insurance which sees a small device fitted out-of-sight in your car and it measures how well you drive in order to reward safe drivers with discounted insurance. This can be particularly effective in reducing the cost of insuring a new driver, it is generally available to everyone.

Save Money By Checking The Costs Early

Research from Compare The Market has suggested insurance policies are £319 cheaper if drivers switch three weeks before their renewal date compared with switching on the day a policy ends. Switching a policy on the day it ends costs on average £776, compared with £457 if you move three weeks before.

Never auto-renew

It can be easy to forget about your car insurance and let it roll over to the next year.

But you could save yourself hundreds of pounds by not auto-renewing and seeing what other deals there are on the market.

Change Policies Mid-Term

Some car insurance policies are taken out for 12 months at a time and you pay for them upfront. But you don't have to wait until it ends to switch to another one. If you do find another premium for less than what you currently have, you can just cancel it, given you haven't had to make a claim since taking it out. If you did pay for the premium upfront you should be able to get a refund for what's left on the contract. Bear in mind though you may have to pay an admin fee to cancel early. One other drawback is that you won't earn a year's no claim bonus, but if it means making big savings it might just be worth it.

Discounts for paying upfront

But while paying monthly might be easier to budget, you could end up paying more in total across the whole year. So if you've got the money to hand, it might be worth forking out for the whole year.

No Claims Bonus

A no-claims bonus or discount is an optional feature of most car insurance policies, which rewards you for not making any claims by giving you a discount on the next year's policy. These can be very significant. For example, a provider might give you a 30% to 40% discount if you don't claim in your first year, and then offer an additional 10% if you repeat the feat in your second year and beyond. You can pay for an add-on to your policy to get a no-claims protection. It allows you to claim one or more times per year without impacting your no-claims bonus.

Rent A Car By The Hour

This is not as extreme as it sounds, especially in cities like London. Ask yourself if you really need or want the hassle of a car. I'd guess that 90% of the time of a car's life is sat doing nothing so it might be better to use the increasing number of car rental schemes that allow you to rent by the hour from cars that are parked in streets near you. The most famous provider is Zip Cars - but lots of other services are emerging which do similar things and you then don't have to worry about insurance at all - as it is all included.

If you have a question you liked about this or any topic - here in touch HERE

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