Over the past few years, motorists and businesses have seen motor insurance premiums rise, largely due to unprecedented inflation in the industry. By the end of 2023, insurers were paying out £1.12 in claims for every £1 received in premiums. No wonder premiums have gone up for policyholders.
But there is some good news. In 2024, some costs started to ease and premiums for standard, everyday vehicles have come down slightly. However, commercial vehicle premiums remain high and complex risks (such as electric vehicles and large injury claims) are still putting pressure on the market.
So what’s driving these insurance costs and what can we expect as we move into 2025?
The Causes of High Premiums
Like the general Consumer Prices Index (CPI), motor claims inflation has eased in 2024 due to stabilising wages, improvements in the supply chain and a fall in second-hand vehicle values. But there are still several issues:
Electric Vehicle (EV) Repairs
With more EVs on the road, the repair market is having to adapt. These vehicles take longer to repair and require specialist handling, increasing labour and hire car costs.
Rising Injury Claims
Updates to injury compensation guidelines and the whiplash tariff have increased the average value of personal injury claims, with large claims seeing big rises due to care costs and legal thresholds.
Employer Cost Pressures
Increases in National Insurance contributions and the minimum wage are putting pressure on repair and care service providers and these costs are being passed on to insurers.
Supply Chain and Repair Trends
The good news is supply chains are recovering well after the post-COVID disruption. Manufacturers are improving their sourcing and distribution strategies and parts are more available. But geopolitical tensions, such as the Red Sea shipping crisis, are still a risk as seen with an 8% increase in parts costs earlier in 2024.
Labour costs have also gone up. In early 2024, repair sector wages rose 14% partly due to minimum wage increases and staff shortages, especially in EV-qualified technicians. Repairs for electric vehicles now cost 25% more and take 14% longer than for traditional combustion-engine cars.
Second-Hand Car Market Pressures
Although second-hand car values returned to pre-pandemic levels in 2024, the supply of vehicles 3-5 years old is still low due to the COVID new vehicle production shortfall. As a result, demand has pushed prices back up, especially for vehicles over 5 years old.
The transition to EVs also brings new challenges. Electric vehicles are 30% more expensive than traditional cars and while competition will bring prices down over time, it will take years to balance. In the meantime, total loss claims will become more expensive especially as insurers now have to offer the highest of guide valuations when settling.
Credit Hire and Personal Injury
Car hire periods are still 13% longer than pre-pandemic, mainly due to parts delivery delays. Market hire rates have fluctuated but will rise again once the current excess supply corrects. Since 2014, credit hire costs have increased fivefold, much faster than general inflation.
In terms of injury claims, the recent updates to the Judicial College Guidelines have resulted in a 23% increase in claim values. A further 15% increase in whiplash tariffs will come into force from May 2025 and more claims will go above the £5,000 threshold and potentially increase insurers’ legal liabilities.
Looking Ahead
The outlook is mixed. Inflation is expected to stay above the Bank of England’s 2% target until at least 2027. Global economic instability, trade tariffs and energy price fluctuations are all risks.
A government taskforce has been set up to look into rising insurance costs with a report due late 2025. We’ll see if further regulatory changes come in.
How You Can Help Keep Costs Down
At Haden Welbeck we believe policyholders can play a part in controlling claims costs which in turn helps reduce premiums. Here are a few simple tips:
- Report Claims Promptly: Quick reporting helps manage repair timelines and minimises additional costs.· Use Approved Repairers: We have access to approved repair networks that aim to reduce inconvenience and keep costs down.
- Install a Dash Cam: These provide valuable evidence in the event of an incident, helps to speed up claims and reduce fraud.
- Report Fraud: If you suspect fraud, tell us. Fraud drives up premiums for everyone.
Get in touch if you have any questions about your motor policy or would like advice on how to keep your premiums down.
