Why Is Car Insurance So Expensive? Pearson Ham Has Some Data

Motor insurance prices rose by 16% in Q3 2023, culminating in premiums now being almost 46% higher than last year, says Pearson Ham. According to their research combined buildings and contents home insurance premiums also grew by 33% compared to last year, accelerated by a 10% increase in Q3. Recent coverage in the UK press suggests that many drivers are facing renewal quotes that are often quadruple their previous year’s premium, with EV owners complaining very loudly indeed.

The reasons are twofold; One, there are more uninsured, unlicensed drivers on UK roads than ever, many of them doing delivery work on basic TPF&T social cover, modified or false number plates, no right to work in the UK and so on.

Secondly, the cost of recovery, storage and repair to modern EVs and hybrids is often way more than conventional diesel or petrol car repairs. Some fairly recently registered EV cars are not worth fixing as their value depreciates so rapidly, used battery packs have a low resale value and EV and hybrid claims costs continue to rise. Fact is lithium battery packs carry a considerable fire risk and so storage units plus qualified staff operating those facilities all costs serious money.

Add on some insurance bills for the storage units too – would you like to cover the storage unit fire risks for under £50K a year?

Why? OK typical scenario; two vehicle bump at junction low speed. No airbags deployed.

Bumper and sensors replacement cost, plus recalibration of EV systems, ADAS features, brakes, suspension, doors etc; £3000-£5000

Scratched wheel removal, replace wheel and check bearings, hub and suspension; £1000-£2000

Six to eight weeks storage of EV in secure premises with trained staff removing and checking battery pack for damage or misalignment within compartment; £4000-£6000

Replacement battery pack? £10,000-£17000 for a typical Tesla. Some mainstream EVs may be a mere £6000 or so, trade price estimates by model are here btw.

Three tonne vehicle contractor recovery; £350-£600 per job

Transport X2 trips between storage facility and authorised repair shop; £600-£1000

Fully insured freelance driver delivers car to policyholder; £300-£800

All that is before we add up the claims handler admin costs, or get into sore necks, bad backs, loss of work and other elements of legal/PI claims. Thanks to technology it is possible for insurers to estimate the parts, labour and storage costs fairly early in the FNOL process, which means it might well be cheaper to source a new EV instead for the consumer to use during the remainder of their lease plan – EVs are rarely owned outright due to the 50-80K retail price.

The latest Quarterly Insurance Price Index (Q3 2023) from Pearson Ham Group has found significant motor and home insurance price increases in the last quarter creating an unprecedented rise in pricing in the last year. For motor insurance, the third quarter’s increase of 16% and year on year increase of 46% in pricing are the largest quarterly and yearly increases since the Index began in its current format. Motorists were quoted an average insurance price of £531 in September, which equates to an increase of 16% through the quarter.

The highest increase seen for an individual motorist within the analysis was 82%. The Pearson Ham analysis undertakes a like-for-like comparison of the state of insurance pricing each month, only using the most competitive quotes received to reduce bias and provide the most  comprehensive picture of insurance pricing trends.

Combined buildings and contents policies also experienced an exceptional surge, says Pearson Ham, with prices soaring by 10% in the third quarter alone, resulting in an annual increase of 33%. However, the average movement of 33% over the past 12 months masks some much larger increases for individual home owners seeking combined buildings and contents cover. This highest increase seen within the analysis was 96% compared to twelve months ago.

Most of the premium inflation (19% of the total 33%) seen in the last year for combined home insurance took place in the last six months. As with motor insurance, there was a peak in July with a flattening of rate increases since then. The flattening of rates from July is indicative. Certainly, there is concern at the level of claims and the frequency of claims, but there are signals that the inflationary pressure is easing.

Stephen Kennedy of Pearson Ham Group, said:

“A surge of 46% in motor insurance pricing and 33% for combined buildings and home insurance in the last year has been unprecedented. However, looking ahead, we anticipate that the current trend of price increases will likely stabilize in the upcoming year, reflective of the evolving competitive landscape. While it’s customary for average premiums to experience seasonal reductions in the new year, significant price drops may not materialize until insurers feel more at ease in the changed environment. For the first half of 2024, we can expect a period of relative stability, with the potential for heightened competition contingent upon any shifts in costs.

“It appears that we have reached the peak of the pricing cycle, a phase inevitably succeeded by a decline in motor and home insurance pricing. The only question remains when will this transition occur.”