Premium deflation slows in the car insurance market

• The cost of car insurance is beginning to tick upwards in some UK regions after the COVID pandemic brought insurance costs down for many motorists.
• The average motor premium in the UK is now £782.

As new rules on pricing zoom into view for insurers, the direction of travel for the cost of car insurance may be about to change after months of COVID-related contractions, according to insurance pricing experts, Consumer Intelligence.

Premiums have edged ever-so-slightly downwards by 0.6% in the last three months – with some UK regions even beginning to see premiums rise for the first time in over a year. The average motor premium in the UK is now £782.

Prior to this quarter and earlier in the pandemic, premiums had plummeted due to stricter COVID restrictions – when fewer cars were on the road, which had brought about a reduction in accidents and claims. Fast forward to today and insurers appear to be jostling for position in response to the new rules to tackle price walking.

Harriet Devonald, Consumer Intelligence’s insurance pricing expert, says: “It’s a complicated market, and we’re seeing a lot of different strategies in play. Ahead of 1 Jan, we saw some insurers being aggressive, perhaps chasing volume ahead of GIPP but I wouldn’t say anyone appeared to go ‘all-out’ on that tactic. Others are conspicuously subdued and steady in their competitive performance, doing the bare minimum to keep up with the market and maintain at least a solid baseline of competitive presence.

“We see this with some of the bigger players, likely with larger back-books – so, perhaps, they’ve been investing in maintaining those back-books at GIPP-ready rates. However other brands seem to have been focused on the product side when it comes to new business – rolling out tiered products.

“It all bodes for an interesting few months ahead in the UK motor insurance market.”

Long- term view

Average overall premiums have increased 12.5% since October 2013 when Consumer Intelligence first started collecting data. Although prices are still 20% off their September 2017 pricing peak, with the COVID-19 pandemic subduing car insurance premiums for much of the last 18 months.

Age differences

In the last three months, we’ve seen something of a divergence in prices within our age categories.

Average yearly premiums for the over-50s have now risen 0.6% in the last three months. Whereas motorists aged 25-49 recorded slight declines of 0.5% over the same period, while our youngest cohort – the under-25s – witnessed much steeper falls of 2.5%.

The annual cost of car insurance is now typically £1,717 for the under-25s; this compares to £580 for those aged 25-49 and just £350 for the over-50s. “Even with telematics policies working hard to keep pricing affordable, there is still a huge difference between our age groups,” says Devonald.

Telematics

The COVID-19 pandemic continues to be a catalyst for growth for the telematics sector.

Today, 28% of the five cheapest insurance quotes now come from telematics firms. It’s the highest figure ever recorded by Consumer Intelligence.

Much of this growth is in our middle-aged and older categories, who have traditionally been slow to embrace the technology.

Telematics policies base your premiums on how you drive, with insurance becoming cheaper for safer drivers.

As many as 21% of the cheapest five quotes for motorists aged 25-49 are now from telematics providers – again, the highest figure recorded by us. Similarly, 8% of quotes for the over-50s are now telematics-based. Take-up with the under-25s remains high, too, with 65% of their quotes now based around telematics policies.

Regional differences

Premiums are beginning to tick upwards in some UK regions. In the last three months, Scotland (1.8%), the East Midlands (0.6%), the Eastern region (0.6%) and Wales (0.2%) all saw the cost of car insurance rise.

Whereas other regions continue to see prices retreat over the same period. The fastest fallers being the West Midlands (-2.1%), Yorkshire and the Humber (-1.7%) and London (-1.6%).

When looked at over a 12-month period, all UK regions have seen premiums fall – mainly due to the stricter restrictions imposed by the government earlier in the pandemic.

London drivers (£1,261) continue to be the most expensive to insure, with the North West (£1,104) following in second. The South West (£468) remains the cheapest UK region to buy car insurance.

[1] The cheapest premiums were calculated by comparing the prices offered for 3,600 people by all the major Price Comparison Sites and key direct insurers. The top 5 prices for each person were compared to the previous month’s top 5, then these variations averaged to produce the index.  

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