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Trends impacting Motor Insurance Premiums

Our Motor Insurance FAQ page points to many cost pressures that insurers have been facing over the past years including the cost of labour, parts, and energy. We will continue to track the trends of those component costs but hope that those inflationary impacts will start to dissipate. 

Aside from those cost pressures, there are wider systemic trends that may also have an impact on motor insurance premiums.  

Personal Injury Discount Rate

This is a percentage figure used to help calculate how much insurers have to pay in lump-sum damages to claimants in serious road traffic injury cases, is amongst the lowest in the world – which means a higher cost to insurers. Uplifts in lower value damages awards and costs for injuries resulting from car accidents are also having an impact. 

Insurance Premium Tax (IPT)

A tax on general insurance products, including car insurance, Insurance Premium Tax (IPT) at its current rate of 12% currently adds an extra £67 to the average motor insurance premium. The tax was introduced by the government in 1997 but the rate has more than doubled since.  

Car Theft

Car theft and theft from vehicles have also been increasing. ONS data shows the number of vehicles stolen in England and Wales increased 24.9% from 2021 to 2022, with 130,389 vehicles stolen in 2022 alone

Electric Vehicle Repairs Cost

The use of electric vehicles is growing from 97,565 units in 2019 to 978,387 units in 2023, according to data collected by the Society of Motor Manufacturers and Traders (SMMT). According to analysis by Thatcham Research, EVs are 25% more expensive to repair than their internal combustion engine equivalents and take 14% longer to repair. These pressures may continue to mount as the UK’s vehicle fleet becomes increasingly electrified.  

Rising Costs

AutoTrader has been tracking the average cost of a new car and found that the price in 2023 is £39,308, up from £27,305 in 2018 – this represents a 44% increase over a five-year period. More expensive new cars mean higher insured values.

In a similar vein, the cost of repairing cars has also been increasing. According to Thatcham Research, the average repair cost stood at £3,304 in 2021; a 64.7% increase on the 2014 value of £2,005. This can be in part explained by the increased complexity of cars due to improved safety measures and technological development. Looking forward, this trend may mean that repair costs continue to increase as new elements such as diagnostics and recalibration add to the repair bill.  

Last updated 23/02/2024