Why is car insurance so expensive in the UK?

If you’re shocked by the cost of your recent car insurance quotes, you aren’t alone. Bills have rocketed during the cost of living crisis and the average premium is now £776 a year – an increase of 40 per cent over the last 12 months. Get the lowdown on why your car insurance is so expensive and find out what you can do to keep your costs under control.

What makes car insurance expensive?

There are currently a number of economic factors that are making car insurance particularly expensive.

These include:

Insurance premium tax: This is a tax that is charged on general insurance premiums, and it has risen significantly over the years. When it was first introduced in 1994 it was levied at a discrete 2.5 per cent, but now stands at a much more noticeable 12 per cent.
Increased claim costs: According to the Association of British Insurers (ABI) the cost of vehicle repairs has risen by 46 per cent over the last year – the biggest increase on record. Energy price inflation, along with the rising cost of spare parts, are all making it more costly for garages to get our cars back on the road after an accident.
Increases to the price of second-hand cars: Supply chain problems and increased demand (since the pandemic and the invasion of Ukraine) have led to an increase in the value of used cars too. According to analysis from Auto Trader, the price of three- to five-year-old cars has soared by nearly 36 per cent in the 12 months to March 2023.
Fraud: Estimates suggest insurance fraud adds around £50 to the cost of every car insurance policy. Motor fraud can range from dishonest or exaggerated claims to fronting – where parents tell insurers they are the main driver of a car to get a cheaper policy for their child. Staged accidents and ‘cash for crash’ schemes are becoming more prevalent too.
Serious injury compensation: Insurers have to use something called the ‘Ogden rate’ to determine how much compensation to pay when people are seriously injured in an accident. Changes to this rate directly impact the cost of your car insurance.
Uninsured drivers: If you are involved in an accident with an uninsured driver, you’ll need to turn to the Motor Insurance Bureau for compensation. However, it’s down to law-abiding insured drivers to fund the MIB, and the cost can add as much as £30 to every car insurance policy.

What other factors make car insurance expensive?

These economic factors aren’t the only things that drive the cost of your car insurance. There are also a wide range of other considerations insurers will take into account when calculating your premium, which revolve around you, your car and your driving habits.

Although you can’t do anything about the economy, getting to grips with these ‘personal risk factors’ can help you get a better understanding of why your car insurance is so expensive and may help you bring the cost down.

Car insurance personal risk factors:

The make and model of your car: As a guide, the more expensive your car and the more powerful its engine, the more it will cost to insure. Insurers categorise cars into insurance groups, numbered from 1-50. Cars at the lower end will be the cheapest to insure. It’s a good idea to find out what insurance group a car is in before you buy it
Your age: Younger drivers will pay significantly more than more mature drivers with years of experience under their belts
Your address: The higher the risk of crime in your neighbourhood, the more you’ll have to shell out for your car insurance
Where you park your car overnight: Insurers prefer cars to be parked on drives, rather than on the street
Your job: Insurers will view some occupations as riskier than others. For example, delivery drivers and salespeople that spend a lot of the time on the road will pay more than office workers who commute by train. The cheapest ‘occupation’ is ‘retired’
Your driving history: If you’ve been in car accidents or got points on your licence, your car insurance will be more expensive. Unfortunately, even if you are involved in an accident that wasn’t your fault, your insurance premium will likely go up when you renew your policy
Car modifications: Changes to the appearance or performance of your car can make your car insurance more expensive. This could be anything from alloy wheels to tinted windows, spoilers or wheel arches

Is car insurance more expensive for new drivers?

Car insurance is most expensive for the youngest drivers. According to some estimates, drivers under the age of 20 are now likely to pay more than £2,000 a year for their cover. This compares to £413 a year for the typical 69 year old.

The main reason car insurance is so expensive for young drivers is that they are more likely to be involved in a car accident than more experienced motorists. Claims tend to be bigger too, with younger drivers more often being involved in serious collisions.

According to Brake, one in five drivers crashes within a year of passing their test, while more than 1,500 young drivers will be seriously injured or killed in road accidents each year.

The road safety charity says inexperience means young drivers are less likely to spot hazards on the road. Youth and immaturity can also make some young drivers over confident and more likely to take unnecessary risks like speeding, racing, tailgating and aggressive overtaking.

Insurers typically categorise new drivers as those aged between 17 and 24.

Does car insurance become more expensive after renewal?

Following the introduction of new rules at the start of 2022, insurance companies can no longer charge customers that are renewing their car insurance more than an equivalent new customer buying an equivalent policy. These are referred to as the General Insurance Pricing Practices (GIPP).

But while existing customers may no longer be paying this ‘loyalty penalty’, it doesn’t mean their car insurance will not be more expensive when they come to renew it.

There are many reasons why your car insurance might become more expensive if you auto-renew with your existing insurer. This could be down to events over the past year or the result of wider economic factors.

Reasons why your car insurance renewal might be more expensive:

You have claimed on your policy: Even small claims, or claims for accidents that weren’t your fault, will make your car insurance more expensive
You have got points on your licence: If you’ve been caught speeding or received any other driving conviction
You have needed to update your policy details: If your circumstances have changed in some way, for example you have moved house, your occupation has changed or you’ve had to increase your annual mileage
General inflation: The rising cost of everything from labour to paint, spare parts and used cars is pushing up costs for insurance companies
Legislation loopholes: Although the 2022 insurance pricing rules have forced insurance companies to stop offering their best deals to new customers, they only apply to regular premiums and not fees. As a result, some critics say insurers are attempting to recoup their costs by increasing the various fees charged on their policies. Another problem with the rules is that they only apply if you are buying an identical policy via the same channel as you did last year. This means if you need to change or update your cover in any way, these rules will cease to apply

How can I make my car insurance less expensive?

Thankfully, there are plenty of things you can do to keep a lid on inflation and cut the cost of your car insurance:

Don’t auto-renew: It makes sense to do your homework and shop around for your car insurance every year. Despite new rules intended to remove the ‘loyalty penalty’, you can usually find equivalent cover for less if you use a price comparison website. You should get your renewal notice around three weeks before your policy runs out, giving you plenty of time to shop around. Research has also found that costs go up the later you leave it, with 18 days before your renewal date deemed the optimal time to buy your new policy
Don’t overestimate your mileage: It’s important to be honest about your likely mileage, but there’s no point insuring more than you need either, as it will only make your car insurance more expensive. According to MOT data, over half of UK motorists drive less than 100 miles a week and less than 5 per cent hit 15,000 miles a year. If you aren’t sure what your mileage is, you can get a rough idea by looking at previous MOT reports. You can do this online with the government’s MOT checking service
Increase your excess: Your insurance excess is the amount you pay towards the cost of a claim. By increasing your voluntary excess, you can reduce the cost of your cover, however it’s important not to push it up so much that you would struggle to pay it in the event of a claim
Consider telematics or black box insurance: This involves using a smartphone app or a device that is fitted to your car to monitor your driving. By analysing your driving style (for example your speed, cornering and braking) as well as your mileage and the time of day you drive, your insurer will be able to charge you a bespoke premium. The safer your driving, the cheaper your cover will be. This can be a great way for young and inexperienced drivers to make their insurance less expensive. It can also be helpful for motorists with driving convictions. Pay-as-you-go telematics policies can also save you money if you have a very low mileage or only drive occasionally
Pay your car insurance up front: The cost of your car insurance might make you tempted to spread the cost over the year with monthly payments. However, while this approach might help you budget, it is more expensive because insurance companies will charge you interest for the privilege. Always pay annually if you can
Play with job titles: Insurance companies will take your occupation into account when calculating your premium. While it’s important you don’t lie about the work you do, it is always worth experimenting with different permutations to your job title. One job, for example, can often be described in multiple ways, which could all be priced differently by insurers. A journalist, for example, might be able to use ‘writer’ or ‘editor’ instead. Likewise, there might not be any real difference between an ‘operations manager’ or an ‘operations supervisor’
Don’t pay for add-ons you don’t need: When you buy car insurance, you’ll be offered a variety of optional extras or bolt-ons. These will all make your car insurance more expensive, so only choose those you genuinely need. Do you really need cover for your keys or a courtesy car? You might also find you already have some of the cover offered, such as motor legal protection, included in your home insurance or with your bank account
Add an experienced driver to your policy: Younger drivers can often save money by adding an older person, such as a parent, to their policy as a named driver. However, parents should be aware that if they add their children to their policy, the cost of their insurance is likely to go up – especially if they are under 25 or have only recently passed their test
Invest in car security: You can sometimes reduce the cost of your insurance by making your car harder to steal. This can be done by fitting an industry-approved alarm or an immobiliser, but talk to your insurer first to check if it will be worthwhile
Always drive carefully and build your no-claims discount: To ensure your insurance costs don’t go up in the future, it also pays to drive sensibly. Any points you get on your licence – for speeding, for example – will increase the cost of your car insurance and stay on insurance company records for five years. Safe driving will also reduce your risk of claiming for an accident and help build your no-claims discount. More experienced drivers that have built up a healthy no-claims discount might also want to consider paying an additional premium to protect it. This enables you to make a specified number of claims without reducing your no-claims discount

Frequently asked questions about why car insurance is so expensive

Yes. You will have to declare any driving convictions, from speeding to drink-driving or uninsured driving, to your car insurer. This will unfortunately flag you as a higher risk driver and your car insurance is likely to be more expensive as a result.

You might think new technology is making our cars more secure, but according to the latest figures from the Office for National Statistics, there was a 25 per cent increase in car thefts across England and Wales during 2022, and it’s keyless entry cars that are being targeted.

Keyless cars mean you don’t have to root around in your bag or pockets to get into your car, but while they might be convenient, the new technology has been a gift for thieves. Professional gangs are increasingly using ‘relay technology’ to trick keyless cars’ security systems and can quickly and discreetly steal them from their owners’ drives, often in as little as 60 seconds.

While some thieves still use less subtle methods of stealing older cars, research from insurance company Aviva has found keyless cars are now twice as likely to be stolen than cars that require a key.

If you have a keyless entry car, you can make it harder to steal by storing your key fob in a ‘Faraday pouch’ that blocks its signals. You should also try and store it as far away from your car as you can too.

Molly Dyson

Senior Editor

After growing up with a passion for writing, Molly studied journalism and creative writing at university in her home country of the United States.

She has written for a variety of print and online publications, from small town newspapers to international magazines. Most of her 10-year career since relocating to the UK has been spent in business journalism, writing and editing for admin professionals at PA Life magazine and business travel managers at Business Travel News Europe and representing those titles at conferences around the world.

Now an Editor at the Independent Advisor, Molly is an expert in a broad range of consumer topics, that include solar panels and renewables, home improvements and home insurance, and consumer technology such as home security and VPNs.

In her free time, Molly can usually be found exploring the outdoors with her husband and their young son or gardening.

Why is car insurance so expensive?