Information on car insurance companies - April 2024

Please provide information relating to car insurance companies. Full details of the request can be found in Annex A below.

Thank you for your emails of 15 March 2024, in which you asked for information relating to car insurance companies. Full details of your request can be found in Annex A below.

We have processed question 1 in line with the provisions of the Freedom of Information Act 2000 (FOIA). For questions 2 to 8 you are asking us to provide answers or explanations, as opposed to ‘recorded information’. In line with our policy and the Freedom of Information Code of Practice[1] issued by the Cabinet Office (please see paragraphs 1.1 to 1.7), questions 2 to 8 of your request has been treated as ‘routine correspondence’.

Before considering our response, please note the following:

Price increases

We note your comments about the rate of increase in premiums in relation to the rate of inflation. However, as you may know, inflation is a measure which amalgamates the overall increase in prices for goods and services, considering consumer spending habits. Therefore, it does not follow that, individual products or service must only increase, or decrease by the rate of inflation.

However, whilst the above is true, we have not seen data that supports the figures you have quoted in your emails – a range of 50-82% increases in premiums, across the whole car insurance market. Inflation continues to have a significant impact on the price of insurance, mostly because the cost of repairs has gone up. We have, and will continue to, analyse industry data. This includes recent research by the Association of British Insurers (ABI), which estimates that the cost of vehicle repairs has increased by 33%. Cost increases were said to include:   

• Energy inflation adding to each repair.   
• Average paint and material costs have increased by nearly 16%.   
• Courtesy car costs to repairers are increasing at around 30%.   
• In addition, the average price of second-hand cars has jumped by 30% in three years.   

Unfortunately, additional costs associated with the fulfilment of claims are likely to result in an increase in the premiums charged by insurers, as they need to be able to sufficiently cover these costs. The ABI has found that premiums for motor insurance have risen, on average, 21% since June 2022. However, we recognise that some consumers, such as those residing in higher risk postcodes, may see their premiums rise much more than the market average.

However, it is important to distinguish between high prices and fair prices. While premiums have risen sharply, we are not generally seeing firms making excessive profits in motor insurance, it appears that claims inflation and the cost of repairs are driving up premiums.

We also recognise the impact of cost-of-living crisis and we committed to closely monitoring the relevant metrics, and how firms are supporting their customers.

Differences in premiums between postcodes

Customers residing in certain areas may face higher premiums than if they lived elsewhere, because insurers use postcodes as a risk factor to determine the likelihood that a customer will make a claim. Insurers may consider a postcode to be higher risk due to a variety of reasons, including crime rates, population density, traffic density, environmental factors, number of claims in the area and number of accidents in the area.

We would encourage customers who are unsatisfied with the price they have been quoted to shop around to see whether they can find a better deal. Additionally, if they believe the price is not fair or has not been fairly communicated and explained, they should complain to the firm. If they are not satisfied with the response, they can refer their complaint to the Financial Ombudsman Service.  

Your specific questions

We note you sent two emails in relation to the FOI request. Where your questions are duplicated, we will address them under one question. Where questions have been answered in the information we have provided above, we have not repeated the answers in this section.