Making sense of trends in the cost of motor and home insurance
Trackers, surveys, indices, whatever you call them, the last few years have seen a proliferation in the analysis of movements in insurance premiums, especially on motor and home insurance. Interest in what they show has intensified, which is hardly surprising, given the financial challenges many households continue to face from rising cost of living bills. But are they providing an accurate picture of premium trends – do they enlighten or confuse?
Use different metrics and you get different results – prices paid v. prices quoted
Different trackers are measuring different things. So, not surprisingly, findings will vary. This does not make one tracker right or wrong, it’s just that they are using different metrics.
Our own quarterly Premium Trackers are unique in measuring what customers actually pay for their motor and home insurance. Other trackers cover prices quoted. Quoted prices may be rising at a faster rate than the prices actually paid, or customers may be changing the coverage purchased or their insurer, which is why headline figures from our Trackers may be lower than from others.
Our Motor Insurance Premium Tracker covers over 28 million policies sold annually (7 million a quarter). The sample size for others varies between 1,000s and 10,000s over their tracking period. We cover both new and renewing customers, whereas comparison website analysis covers new quotes only. Our Household Insurance Premium Tracker is equally comprehensive, covering around 4 million polices per quarter, and 16.5 million for the past 4 quarters.
Our data covers private comprehensive motor policies, without any paid add ons such as legal protection, whereas product coverage may vary between other trackers.
Our methodology is relatively simple - we collect the total value of business sold by participating insurers, and the number of policies sold; dividing the former by the latter gives us the overall average premium paid.
Quote-based trackers necessarily define a set of customer profiles - for example the age of a driver, the insurer used, the size of their voluntary excess - which in some cases will be kept constant over time. If customers across the market alter the level of coverage they buy, or shop around and obtain a cheaper policy from a different insurer, quote based trackers will not necessarily capture this change. Our tracker captures the outcome of these changes in the price the customer eventually pays, at an aggregate level.
An average is only an average
We have all seen recent headline grabbing examples of high renewal premiums quoted. Some may not sit easy with our tracker, the most recent of which shows that the average motor insurance premium paid is up 7% in the second quarter, a rise of 21% over the last year. While it may be cold comfort for many at the moment, it’s worth bearing in mind that the current average premium paid is still £53 less than the inflation-adjusted rate since the start of 2020.
Of course, our figures are averages, and there will be a number of different factors behind individual premium rises. These include the sustained cost pressures facing insurers such as higher labour, raw materials and parts costs. Vehicle repair costs alone have risen 33% in the last year; with reported increases in labour costs up to 40% between June 2022 and January 2023.
We cannot speculate on the future
As for the future, we cannot speculate, because individual insurers will see things differently and will decide their own commercial approach (and because competition law prohibits signalling future price movements). Of course, in any business, it is simple economics that if costs increase dramatically, then a company will need to assess the impact on the goods and services it offers.
So where does all this leave the customer? We urge anyone concerned about being able to afford their insurance to speak to their motor insurer to see what options might be available. And despite cost pressures, it can still pay to shop around to get the policy that best meets your needs at the most competitive price.