The cost of comprehensive car insurance in the UK fell by 6% last year due to intense competition between insurers and fewer journeys taken during lockdowns.
That is according to Willis Towers Watson (WTW) and Confused.com's latest Car Insurance Price Index, which shows that motorists are now paying £536 on average, which is £36 less than 12 months ago.
However, after falling for four straight quarters, the average cost of car insurance increased by 5% in the final three months of 2021, indicating volatility in premiums for the year ahead.
This comes after the Financial Conduct Authority (FCA) last year confirmed new motor insurance rules that will ensure renewal quotes are not more expensive than they would be for new customers, thus removing the 'loyalty penalty'.
“More pricing volatility is expected in the coming months, with insurers competing to maintain margins as they adjust to the new FCA fair pricing rules,” said Tim Rourke, UK head of P&C pricing, product, claims and underwriting at WTW.
“How insurers respond to the new rules through pricing and product strategy will determine just how turbulent the next few months become.
“Meanwhile, the pandemic will continue to put insurers under considerable pricing pressure as wholesale society changes evolve and disrupt the market, exacerbated by claims inflation potentially rising further in 2022 and the long-term impact of the whiplash reforms still unclear.”
WTW's Car Insurance Price Index is the longest established and most comprehensive car insurance price index in the UK, based on price data compiled from almost six million customer quotes per quarter.
The cost of comprehensive car insurance over the last three months increased across all regions in the UK, with drivers in Central Scotland experiencing the sharpest quarterly rise of 8%, followed by Manchester and Merseyside, where drivers saw a 6% rise.
The smallest quarterly increase of 3% was seen in South West England.
The demographic that saw the greatest quarterly increase were young male drivers aged between 21 and 30 who saw their car insurance rise by 6-8%, taking the premiums of those aged 21-25 to £1147 and £858 for those aged 26-30.
“The increases we’re seeing in car insurance prices are not unexpected,” said Louise O’Shea, CEO at Confused.com. “Before the pandemic, Brexit was already causing the price of claims to inflate due to the cost and length of repairs.
“Now with these issues heightened by the pandemic and therefore putting further pressure on insurers, we can expect prices to inflate even further over the coming months, regardless of any impact the recent FCA changes may have.
“What we could also see now is an incredibly competitive market. Insurers can no longer offer discounts to differentiate between new business and renewal, and so we could start to see many companies looking at the way they are pricing to become more attractive to customers.
“And with this, insurers could be seeking out as much insight into pricing trends as possible to see how other companies are reacting.”
Image credit: iStock
Author: Chris Seekings