General Insurance Article - Call for reduction in IPT as car insurance prices rise

Following successive quarterly increases in costs, some insurers have reported further Q3 increases of 16% for materials, 15% for labour and 46% for other costs, largely driven by the price of energy. In the third quarter of 2023, the average price of motor insurance was a record £561, an increase of 29% compared to the same time last year.

 The Association of British Insurers (ABI) is calling on Government to reduce the rate of Insurance Premium Tax (IPT) to help motorists, which makes up £60 of the average premium.

 In the third quarter of 2023, the average price of motor insurance was a record £561. This was an increase of 29% compared to the same time last year, according to the latest data from the ABI.

 Our Motor Premium Tracker is the most comprehensive in the UK, analysing nearly 28 million policies sold over the last 12 months. It’s also the only collection that’s based on the price customers pay for their cover rather than what they are quoted.

 In numbers:

 The average price paid for motor insurance from July to September 2023 was £561
 This is an increase of 9% on Q2 2023
 And an increase of 29% compared to Q3 2022
 Continued inflationary pressures

 We know that insurers are experiencing inflationary pressures as well as delays in their repair and supply chains, with the cost of parts and materials going up. Added to this is the rapid acceleration of car technology. As cars get more sophisticated, they’re even more expensive and difficult to repair. A shortage in the number of skilled technicians is also increasing claim costs further as repairs are delayed.

 For example, insurers have reported that the cost of paint has increased 16% and spare parts are up 11% from Q3 2022 to Q3 2023. Other costs, largely driven by the price of energy, are up 46%. All of these have had an impact on the cost of claims, which has pushed up premiums.

 A study from EY highlighted that in 2022 for every £1 motor insurers received in premiums, they paid out £1.10 in claims and operating costs.

 As insurers continue to face significant cost pressures, we’re working with industry bodies such as the Society of Motor Manufacturers and Traders (SMMT) and Thatcham Research to understand areas of shared concern between manufacturers and insurers, such as vehicle safety and security.

 £60 of the average premium is tax

 With IPT making up 12% of every premium, we’re calling for this to be reduced in the Chancellor’s Autumn Statement later this month. The move could save drivers up to £60 on the average premium.

 IPT is applied to most general insurance products including motor, home, pet and health insurance. Last year, the tax made £7.45 billion for the Government.

 Mervyn Skeet resized.jpgMervyn Skeet, ABI Director of General Insurance Policy, said: “We appreciate that another quarter of increased motor insurance premiums will be concerning for households who are already grappling with rising costs in other areas.

 “Insurers continue to do all they can to keep motor insurance as competitively priced as possible, despite facing substantial increases in costs outside of their control. We're bringing together representatives from across the sector to discuss issues such as vehicle safety and security. However, the government could help drivers with an immediate reduction in costs by reducing Insurance Premium Tax

 “If your insurance is coming up for renewal, we would always recommend shopping around and find the best policy for you. But be sure to choose a policy that meets your needs, not just based on price. If you’re struggling to pay your premium, speak to your insurer who may be able to help.”

 Advice for drivers

 From shopping around to find the best deal, increasing your voluntary excess, improving the security of your car, and taking an advanced driving course, there are several steps a driver can take to bring down the cost of motor insurance. Speak to your insurer to understand what vehicle safety measures or driving courses they recognise or if there are any other options to consider that can help reduce your premium. However, it is vital that you always choose a policy that meets your needs, not just based on price. 

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