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A car insurance policy offers financial protection against the risks to which a driver is exposed, namely being involved in an accident with another vehicle, damaging another person’s property, accidentally damaging his or her own vehicle, and being the victim of theft.
Policies cover medical costs and other financial liabilities, including to third parties, and can provide redress for financial losses and expenses.
Car insurance is a legal requirement for all car owners unless they register their vehicle as ‘off road’ by applying for a Statutory Off Road Notification (SORN) from the Driver and Vehicle Licensing Agency (DVLA).
There are two main forms of cover available – one for personal vehicles, and another for business and commercial vehicles.
How much is the UK motor insurance market worth?
The motor vehicle insurance industry is currently valued at £19.9 billion. Between 2018 and 2023, it declined from £23.6 billion, on average by 4.1% per year, according to the latest data from analyst IBISWorld.
Despite the size of the market, most insurers make a loss on their motor insurance underwriting operations. Instead, they make profit in other areas by offering their policyholders additional services such as home, travel or pet cover, says trade organisation, the Association of British Insurers (ABI).
Insurers can also boost the revenue they make from motor cover by offering their policyholders add-ons such as cover for car breakdown and legal expenses.
Major players in the UK car insurance industry
A total of 195 providers make up the motor insurance industry as of September 2022, according to analyst Statista.
The following table shows how the market shares of each of the top 10 providers has changed over the past three years (2021-2023). These 10 groups currently account for roughly 70% of the market.
| Provider | 2021 | 2022 | 2023 |
|---|---|---|---|
| Admiral Group (Admiral, Bell, Diamond, elephant.co.uk, Gladiator) | 15.70% | 14% | 11.28% |
| Aviva (Aviva, Quotemehappy, One Call) | 10.80% | 11% | 10.56% |
| Direct Line Group (Direct Line, Churchill and Darwin) | 11.60% | 11% | 10.22% |
| Hastings | 7.50% | 7% | 6.85% |
| LV= | 8.70% | 6% | 6.61% |
| RSA | 3.20% | 4% | 6.52% |
| AXA | 12.60% | 6% | 6.26% |
| NFU Mutual | 4.30% | 4% | 4.17% |
| esure (Sheila's Wheels, esure) | 5.30% | 4% | 3.87% |
| Ageas | 4.80% | 4% | 3.74% |
Source: Statista
What types of car insurance are there?
There are three main types of car insurance policy:
- Third party: the minimum legal requirement, it provides the least amount of protection. It covers costs resulting from the policyholder being responsible for injuring someone else or damaging another’s vehicle
- Third party fire and theft: in addition to providing third party protection, it covers the policyholder’s vehicle in the event it is damaged, stolen or destroyed in a fire
- Comprehensive: the highest level of cover, it offers third party and fire and theft protection as well as cover for medical expenses, accidental damage to and the damage or theft of property from the driver’s own vehicle.
How much is claimed on car insurance policies?
Association of British Insurers data shows that in 2023 insurers paid out £9.9 bn in motor insurance claims. This was the highest annual figure since it began collecting this data in 2013.
The figure was up 18% on the £8.4 billion paid in 2022. The overall number of claims settled, at 2.3 million, also rose 10% on 2022.
The cost of vehicle repairs at £6.1bn, increased by 31% from the £4.7bn paid in 2022. The ABI says this reflected continued rising costs, with some insurers reporting further increases of 16% for materials, and 15% for labour. Some garages, meanwhile, faced a 300% rise in their energy costs during 2023.
Payouts for vehicle theft (of and from a vehicle), and the average theft claim were both at record levels in 2023. Insurers paid out £669 million – 23% higher than the £543 million paid out in 2022. This, and the average theft of a vehicle claim of £12,600, were both the highest on record.
The cost of providing courtesy cars to drivers whose vehicles were off the road following a claim stood at £597 million, which was 35% higher than in 2022. This represented another annual record since this data has been collected.
Personal injury claims cost insurers £2.4 billion meanwhile, down 8% on the previous year’s figure of £2.6 billion.
The ABI claims that when adjusted for inflation, the average cost of a car insurance claim has outpaced average premium increases since 2014.
ABI data shows the average total cost of a settled car claim increased by 23% from £3,500 in 2014 to £4,300 in 2023. Over the same period, the average premium rose by 8%, from £505 to £543.1
What are the different types of car insurance claims?
There are various types of claim, including:
- At-fault: the policyholder is to blame or the insurer cannot track the other driver which means fault is automatically placed on the policyholder
- Non-fault: someone else is at fault and the insurer can track them. The insurer will pay out but then recover the sum from the insurer of the liable party
- Partial-fault: the policyholder and someone else are both to blame. The insurers for both parties pay out and recover the relevant costs from the other insurer
- Theft: the policyholder’s car is stolen and the insurer pays out the market value of the car.
What is the average cost of car insurance?
There are various estimates for the average cost of car insurance in the UK from a range of sources, including the government, insurance companies and brokers, and other organisations.
The figures can vary widely according to the data sets being used.
According to the ABI, which represents 90% of UK insurers, the average annual private car insurance premium was £635 in Q1 2024, up 1% on the £627 of the previous quarter.
This is the highest average amount paid since the ABI started collecting this data. The increase reflects the increasing costs for repair work, including paint, materials and labour.
Analysts at EY estimate that, in 2022, for every £1 motor insurers received in premiums, they paid out £1.11 in claims and operating costs. EY also forecasts that in 2023, insurers will have paid out £1.14 in claims and operating costs for every £1 received in premiums.
Multiple factors influence how a driver’s car insurance premium is calculated. These include the type of car and their driving history, age, occupation and address.
Newer and more expensive cars typically cost more to insure. All cars sold in the UK are allocated into 50 groups by the Group Rating Panel, which includes members of the ABI and Lloyd’s Market Association. The groups are based on factors such as the price of a car when new, repair costs, performance and safety features.
All things being equal, the higher the group, the more expensive the insurance.
When assessing a car owner’s driving history, insurers will consider factors such as any accidents a driver has been involved in, the claims they have made and whether they have been previously declined for car insurance. They will also consider the amount of time they have held a driving licence.
Younger drivers are seen as more of a risk due to their inexperience behind the wheel and are therefore charged more in premiums. Once drivers reach 75 and above, they are also seen as higher-risk as they are more likely to be involved in crashes that could be fatal, due to their potential medical fragility.
According to the latest information from the ABI (2021), drivers aged between 66 and 70 pay the lowest annual premiums of £261.
While insurers are not legally allowed to calculate a policyholder’s premiums based on gender, women tend to pay less for their policies than men. This is because they typically receive fewer convictions for poor driving, have fewer penalty points added to their licence and are involved in fewer major road accidents.
Admirals’ April pricing figures show its female policyholders pay 17% less in annual premiums on average compared to male (£724.65 compared to £871.54).
These prices are significantly higher than the ones we mention earlier from the ABI, illustrating how difficult it can be to nail down a universally agreed average for the cost of car insurance.
A policyholder’s occupation also has a role to play in how much they are charged for their policy. Hospitality staff, social workers, traders and sales assistants often pay more than other workers for a policy – usually around £474, according to vehicle leasing firm, Vanarama. This compares to around £410, for those with the title ‘branch manager’, who are charged the least.
Paying, on average, a few pennies more are the likes of product managers, police officers and architects. Generally, drivers who are in roles which require minimal use of a personal car, and where they can park their vehicle somewhere secure, pay less.
Car insurance prices also vary according to location. Insurers will assess the traffic where a driver lives, how densely populated the area is, how often motor accidents and thefts are reported and the types of drivers seeking insurance – based on factors previously mentioned.
The latest data collected by Forbes Advisor’s car insurance partner, quotezone.co.uk, reveals that drivers in London are charged the most in premiums – £781 annually on average. Drivers in more rural parts of the UK, such as Devon and Cornwall are charged an average amount of £423 a year.
The table below shows what drivers can expect to pay depending on where they live in the UK.
How has the cost of car insurance changed over time?
The average annual car insurance premium fell to £429 annually by the third quarter of 2021, according to the Association of British Insurers. This was due to insurers passing on cost savings where they settled fewer claims during national lockdowns. Also, fewer young drivers were on the road during this period, due to lockdown driving test restrictions.
In the fourth quarter of 2021 premiums rose to an average £434 as insurers passed increasingly higher costs for repairs on to policyholders. They fell in the first three months of 2022 to £416 after the industry regulator, the Financial Conduct Authority (FCA) introduced new regulations, which banned car insurers from charging renewing customers more than new customers.
By the second quarter of 2022, costs rose again as road traffic started to return to pre-lockdown levels. By the first quarter of this year they had reached an average of £478 a year, and by the third quarter they stood at a record level of £561.
Average prices rose 12% to £627 in the final three months of 2023, compared to the previous three months (£562).
This is 34% higher than the increase over the same two quarters in 2023. And, when looking at annual averages, motor premiums were 25% more expensive in 2023 than in 2022 (£543 versus £434).
But the ongoing rise in prices appeared to cool in Q1 of 2024, increasing by only 1% to £635.
Car insurance costs are getting harder to manage
According to a study by Forbes Advisor, the financial burden faced by motorists is increasing, as car insurance premiums continue to rise.
The survey of 2,000 British adults found that more than half of British drivers (55%) believe their car insurance is excessively expensive. This sentiment is even more pronounced among younger drivers, with two out of three individuals aged 18 to 34 (67%) sharing the same view.
Despite the high cost of car insurance, the research found that nine in ten Brits (90%) have comprehensive policies, the most expensive cover available.
Almost half (47%) of drivers switched car insurance providers in the past year, with the most common reason for doing so being to save money (38%).
To afford their annual premiums, nearly one-fifth (18%) of Brits have dipped into their savings. Additional financing methods included utilising interest-free credit cards, by more than one in 20 Brits (6%), as well as loans from friends or family (5%).
Kevin Pratt, car insurance expert at Forbes Advisor, says: “Car insurance is a necessity for many individuals and families, and the escalating costs are placing an increasing strain on households already struggling to make ends meet. While saving money is important, it’s crucial not to compromise on the cover you need.
“Striking a balance between cost savings and adequate protection ensures you’re financially secure in case of an accident. It’s worthwhile exploring different options, comparing quotes, and making informed decisions that prioritise both savings and quality cover.”
Key Statistics
- More than half of British drivers (55%) believe their car insurance is excessively expensive
- Almost half (47%) of motorists have switched providers in the last 12 months
- Saving money has been the main motivation behind switching insurers in the last 12 months (38%)
- Nearly one-fifth (18%) of drivers have dipped into their savings in the last 12 months to afford their annual premiums.
What about car insurance for EVs?
EVs are continuing to grow in popularity, as the government’s deadline of 2030 to ban the sale of new internal combustion engine (ICE) vehicles nears. In fact, electric and hybrid car registrations accounted for 16.5% of total car registrations in the UK in 2023, according to the Society of Motor Manufacturers and Traders.
This surpassed the number of registrations for diesel cars to become the second most popular car type, after petrol, for the first time.
EV drivers can typically expect to pay more in car insurance premiums as EV models are usually newer, and their parts are not as readily available. However, it is thought that, in the future, autonomous or driverless cars could attract a lower premium, as they could reduce the risk of accidents caused by human error. An estimated 90% of all traffic accidents are caused by human error, says insurer, Allianz.
The types of car insurance policies available to ICE drivers are the same for drivers of EVs, but insurers may include EV-specific cover such as for the damage or theft of a charger, or the car’s battery.
Despite the potential high insurance costs, electric vehicles can be cheaper to run overall. Studies show that the typical annual running cost averages £1,742 per year (£33.50 per week) for an electric car, according to energy firm Octopus.
This is 21% less than the running costs of a comparable petrol vehicle, which averages £2,205 per year (£42.40 per week). Over 12 months, an electric car can therefore save a driver an average of £463 in running costs.
ICE and EV drivers can run quotes using an online comparison tool in the normal way to find a suitable deal for a competitive price.
Sources
- https://www.ibisworld.com/united-kingdom/market-research-reports/motor-vehicle-insurance-industry/
- https://www.abi.org.uk/products-and-issues/choosing-the-right-insurance/motor-insurance/insurance-pricing-faqs/
- https://www.fca.org.uk/publication/market-studies/ms18-1-2-annex-2.pdf
- https://www.statista.com/statistics/827280/number-of-insurance-companies-united-kingdom-by-sector/
- https://www.statista.com/statistics/1171459/market-share-of-companies-for-motor-vehicle-insurances-in-united-kingdom/
- https://www.abi.org.uk/news/news-articles/2023/5/above-inflation-costs-for-insurers-continue-to-put-pressure-on-motor-insurance-premiums/
- https://www.abi.org.uk/news/news-articles/2023/2/rising-cost-pressures-push-up-the-price-of-motor-insurance/
- https://www.abi.org.uk/products-and-issues/choosing-the-right-insurance/motor-insurance/age-and-motor-insurance/
- https://www.admiral.com/car-insurance/car-insurance-pricing-index
- https://www.vanarama.com/blog/cars/how-much-job-title-impacts-car-insurance-2023
- https://www.quotezone.co.uk/car-insurance
- https://www.abi.org.uk/news/news-articles/2021/04/record-quarterly-fall-in-the-cost-of-motor-insurance-according-to-the-abi/
- https://www.abi.org.uk/news/news-articles/2021/08/in-reverse-the-cost-of-motor-insurance-falls-to-a-five-year-low-according-to-the-abi/
- https://www.abi.org.uk/news/news-articles/2021/11/downhill-drive-continues-with-the-average-cost-of-motor-insurance-down-7-over-the-last-year/
- https://www.abi.org.uk/news/news-articles/2022/02/2021-motor-premium-tracker/
- https://www.abi.org.uk/news/news-articles/2022/05/average-cost-of-motor-insurance-has-fallen-by-5-percent-so-far-this-year/
- https://www.abi.org.uk/news/news-articles/2022/08/higher-costs-for-insurers-put-the-squeeze-on-the-price-of-motor-insurance/
- https://www.abi.org.uk/news/news-articles/2022/12/sustained-cost-pressures-for-motor-insurers-biting-but-motor-insurance-remains-competitive/
- https://www.smmt.co.uk/2023/01/chip-crisis-subdues-new-car-market-but-evs-now-second-only-to-petrol/
- https://octopusev.com/ev-hub/how-much-does-an-electric-car-cost
