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Loyal drivers pay the price for car insurance apathy

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Written by: Emma Lunn
21/04/2022
The cost of car insurance has increased for the first time in 18 months, with drivers who auto-renew their policies paying over the odds for cover.

Motorists in the UK are now paying an average of £550 for their car insurance, following a £12 (2%) increase year-on-year, according to Confused.com. Its Q1 car insurance index – based on six million quotes – revealed this is the highest prices have been since the end of 2020, having increased by £21 (4%) in the past three months alone.

A survey of 2,000 drivers by the price comparison site found that two in five (42%) drivers who received their renewal last quarter saw their prices increase by an average of £39, a £27 increase on the cost of shopping around.

This is despite new rules from the Financial Conduct Authority (FCA) which came into effect in January and state that insurers are now required to offer renewing customers a price that is no higher than they would pay as a new customer.

Confused.com also found a similar situation regarding home insurance renewals, as the cost of a new policy increased by £11, compared to £32 for renewing customers.

Under the new regulations, insurers must offer drivers the same price they would receive as a new customer buying in the same way, banning what was previously known as a ‘new customer discount’ but was often dubbed a ‘loyalty penalty’.

Following these changes, one in five (19%) drivers who received their renewal in the past three months wrongly believed that their renewal wouldn’t increase, with a further fifth (21%) expecting their renewal price to be cheaper.

However, the recent FCA changes don’t guarantee drivers a cheaper or flat renewal price, as any increases in the average cost of car insurance across the UK will also be reflected in renewal premiums.

According to Confused.com, prices have been creeping up for the past six months, with drivers today paying £36 more than those who bought a new policy six months ago, on average.

This suggests that the FCA changes may not be the driving force behind price increases. Since the easing of lockdown restrictions, the number of cars on the road has increased – and with more cars on the road, the more claims drivers are likely to make. This in turn means insurers must raise their prices to reflect the amount of money they are paying out for claims.

But while prices are increasing for most of the UK, there are also some drivers who will see a cheaper price when they shop around. In particular, 17-year-olds are now paying £83 (7%) less compared to drivers of the same age 12 months ago. This brings the average premium for these first-time drivers to £1,166 – the lowest price on record.

Similarly, 18-year-olds shopping around will save £23 (2%) compared to 12 months ago, on average. However, this is still the most expensive age for young drivers, with premiums at an eye-watering £1,419, on average. According to the data, average premiums fall below £1,000 once drivers reach the age of 24.

While prices are typically more expensive for younger drivers, the data also shows that it’s men who are paying out more for their insurance – by about £100 on average. Male drivers now pay an average of £587 for their car insurance, following a £13 (2%) increase in the past year, while women pay an average of £487 in comparison. This is £10 (2%) higher than the price paid by women 12 months ago.

The insurance premium a driver pays will also vary depending on where they live, with some drivers paying more than double what others are paying. Inner London is the most expensive area in the UK for car insurance, where motorists now pay an average of £864, following an £18 (2%) increase in the past 12 months. Drivers in the Scottish Borders pay an average of £370 in comparison, despite an £18 (5%) increase year-on-year.

Drivers need to shop around

Louise O’Shea, CEO at Confused.com, said: “Just like many of our household bills, car insurance costs are starting to increase, and this is mostly down to the fact that we’re driving a lot more now than we were 12 months ago, and this means the number of claims insurers are paying out on is likely to have increased too.

“It’s worrying that so many people believed the pricing changes that came into effect in January would guarantee them a cheaper price, and I have no doubt they had quite a shock when they received their renewal notice and it was higher. This is purely down to the fact that the cost of insurance is going up, and this stands for renewal prices too.

“Data proves that there still is the need to shop around. Yes, prices have increased, but it’s very likely that there will be another insurer that can offer a better price for the cover you need, as the market is more competitive than ever.”

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