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The average price paid for motor insurance leapt by 29% or £125 annually in the third quarter of this year to a record high, according to data from the Association of British Insurers (ABI).
The typical price paid for motor insurance from July to September 2023 was £561, the ABI said – the highest level since its records started in 2012.
Back in the third quarter of 2022, the average price paid was £436, with rising costs of labour and materials pushing up underlying costs, according to the ABI.
It also calculated that around £60 of the average premium is due to insurance premium tax (IPT). IPT is a tax on insurers, which in practice is passed on to customers through the cost of premiums.
The ABI is calling for IPT to be reduced in Chancellor Jeremy Hunt’s autumn statement later this month.
The association also highlighted delays in repair and supply chains, the rising cost of parts and materials and increasingly sophisticated car technology as factors adding to insurers’ own cost pressures, which in turn feed into the prices paid by customers for insurance premiums. Rising energy bills are also impacting costs.
A skilled technicians shortage is also increasing claim costs further as repairs are delayed, the ABI said.
For example, the ABI said insurers have reported that the cost of paint has increased by 16% and spare part costs increased by 11% over the past year.
The ABI’s motor premium tracker analyses nearly 28 million policies sold over the past year. It is based on actual prices paid, rather than quoted prices.
The 29% jump is way above the general rate of inflation.
The Consumer Prices Index (CPI) rose by 6.7% in the 12 months to September 2023, according to Office for National Statistics (ONS) figures.
The association is working with other industry bodies such as the Society of Motor Manufacturers and Traders (SMMT) and Thatcham Research to understand areas of shared concern between manufacturers and insurers.
Mervyn Skeet, ABI director of general insurance policy, said: “We appreciate that another quarter of increased motor insurance premiums will be concerning for households who are already grappling with rising costs in other areas.
“Insurers continue to do all they can to keep motor insurance as competitively priced as possible, despite facing substantial increases in costs outside of their control.
“We’re bringing together representatives from across the sector to discuss issues such as vehicle safety and security. However, the Government could help drivers with an immediate reduction in costs by reducing insurance premium tax.
“If your insurance is coming up for renewal, we would always recommend shopping around and find the best policy for you. But be sure to choose a policy that meets your needs, not just based on price. If you’re struggling to pay your premium, speak to your insurer who may be able to help.”
A Treasury spokesperson said: “Revenue from insurance premium tax contributes over £6 billion a year, which goes towards vital public services, such as the NHS, social care and defence.”