Warning cost of car insurance to rise this year
- Published
Record high motoring insurance is being driven by inflation and vehicle repair costs, the ABI said
The cost of car insurance will continue to rise this year, a regulator says.
The Financial Conduct Authority said in a letter to MPs that consumers had already seen annual premiums increase by 21% on average since June 2022, but that some had experienced much higher.
It said the rise was due to a number of factors, including energy prices, and an increase in the cost of car repairs, paint, labour and spare parts.
The regulatory body said it was "monitoring the situation closely".
"Predictions show further increases in the year ahead," the FCA said.
Figures released last summer showed that motorists were paying more than ever to insure their vehicles.
An analysis of 28 million policies found the average premium in the three months to the end of June was £511.
The market price of used cars also went up, which has led to a significant increase in the value of claims pay-outs year-on-year and has also impacted premium levels, but second-hand car prices have since fallen back.
There have been similar issues for home insurance, with the cost of materials and labour increasing.
In a letter to the Treasury Select Committee, the FCA's chief executive, Nikhil Rathi, said the watchdog were "aware of the growing concern about the cost of renewing insurance, particularly for homes and cars", adding that it was "particularly difficult for consumers experiencing cost-of-living pressures."
The regulator cannot control or set prices, but said it "would monitor the data closely, particularly with a lens of ensuring consumers receive fair value".
The FCA said there had been a period in recent years where products for car and home insurance were "loss-making or marginally profitable for many insurers", and so it expected jumps in premiums.
Earlier this month, comparison website Confused.com said young drivers have been hit hardest by the highest car insurance costs on record, with some facing premiums of nearly £3,000.
It claimed, on average, 17-20-year-olds had seen insurance rise by more than £1,000 from the same time last year.
The Insurance Fraud Bureau has also said that record high costs of car insurance could tempt more young people to commit fraud and warned against "fronting", where someone is added to a policy as a named driver when they should have one of their own, in order to save money.
The Association of British Insurers (ABI) has previously said while car insurance could be expensive there were ways to bring costs down.
It added that it was important that motorists never drove without cover and urged anyone struggling with costs to speak to their insurers.
However, the ABI said insurance is always based on risk and its data showed the average cost and frequency of claims is higher for younger drivers, which can impact premiums.