[Skip to content]

Sign up for our daily newsletter
The Actuary The magazine of the Institute & Faculty of Actuaries

10% of young people's wages spent on rising car insurance premiums

The cost of car insurance in the UK is now more than one-tenth of the average salary of 18-21 year-olds, according to analysis by the Association of British Insurers (ABI).

High premiums for young drivers istock
High premiums for young drivers ©iStock

This is five times the 2% of wages spent by drivers of other ages, with young people now having to fork out around £973 every year for comprehensive cover.

It means they effectively spend all of their working salary between 1 January and 6 February on car insurance, with the rising costs partly blamed on an increase in whiplash-style claims.

“More than any other drivers, young motorists need relief from rising motor insurance premiums,” ABI director of general insurance, James Dalton, said.

“While telematics technology is helping many young drivers manage their insurance bills, cost pressures keep mounting.”

This comes after research from Willis Towers Watson (WLTW) found that car insurance policies in Britain are an average of £60 more expensive than they were in 2016, rising by 8% over the last year.

It shows that the average comprehensive policy now costs £827, with this expected to rise to over £900 by the end of this year.

The ABI said the government must immediately reform the discount rate used to determine compensation for large personal injuries, after changes made last year caused insurer costs to rocket.

It also argues that the way lower value whiplash-style claims are handled needs to be revised, pointing to a resurgence in these type of claims since 2013.

In addition, the association recommends freezing the rate of Insurance Premium Tax, which currently stands at 12%, while Graduated Driver Licensing should also be implemented to protect young drivers.

“The government has a key role in helping keep motor insurance costs under control,” Dalton continued.

“This latest analysis highlights why they need to implement their proposals to reform personal injury compensation and lower value whiplash-style claims as soon as possible.”

However, Access to Justice spokesperson, Andrew Twambley, said the ABI was playing “fast and loose” with the facts regarding whiplash-style claims, arguing that the association’s own members say the number is falling.

He also highlighted how ABI director general, Huw Evans, told the Justice Committee last year that the number of claims was decreasing, and that this is backed up by research from the Institute and Faculty of Actuaries.

A new Civil Liability Bill was proposed last June to cut down on the number of fraudulent whiplash claims, however, Twambley believes the government should first wait to see the outcome of a review into the Legal Aid, Sentencing and Punishment of Offenders Act.

“I am convinced that the review will prove that, where personal injury is concerned, the government, egged on by the ABI, is seeking to fix a problem that is already being fixed,” he added.

Sign up to our free newsletter here and receive a weekly roundup of news concerning the actuarial profession