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New car insurance policies £129 more expensive than renewals as cost of living bites

·Reporter
·2-min read
The average annual price paid for motor insurance increased by £5 in the second quarter of 2022. Photo: Getty
The average annual price paid for motor insurance increased by £5 in the second quarter of 2022. Photo: Getty

The average policy for new motor insurance customers in the UK jumped in the the second quarter of the year as cost of living pressures start to squeeze households, according to a UK industry body.

New data from the Association of British Insurers (ABI) showed the average premium paid for a new policy in the period was £129 ($156) higher compared to a renewed policy.

Average premiums for new policies rose by 3% to £500 and average premiums for renewed policies increased by 0.5% to £371 over the three months, according to the ABI.

The numbers on Monday said that the typical price for private motor insurance has increased to £419, and insurers are finding it increasingly challenging to absorb rising inflationary pressures.

That was up by £5, or 1.3%, on the previous quarter, but still £11 lower than the same quarter in 2021.

In January, so-called price walking — a controversial practice where customers were signed up at a discount and then faced undue price rises over time — was banned in the UK.

While the ABI said it was still too early to fully assess the impact of the ban it added that the figures indicated a rise in the difference between new and renewed premiums.

The average new policy was £105 more expensive than the average renewal in the first quarter.

Read more: Direct Line hikes insurance prices amid rising inflation and economic uncertainty

Callum Tanner, the ABI's manager, general insurance, said: "Insurers appreciate that these are difficult times for many households dealing with the rising cost of living.

"While, like many other sectors, motor insurers are facing higher cost pressures of their own, which are becoming increasingly challenging to absorb, they will continue to do all they can to keep motor insurance as competitively priced as possible.

It comes as Direct Line last week said it pushed prices 15% higher for new customers in the six months of the year.

The insurer added it would be lifting insurance premiums in response to the effects of soaring prices for everything from used cars to spare parts.

Chief executive Penny James said the insurer expects motor claims inflation to rise about 10% in 2022, adding "our rate increases ... need to reflect that". Rates rose by 15% in the first half.

Watch: How to save money on a low income