General Insurance Article - Ten steps insurers are taking to tackle motor cover costs


Insurers announce actions to bring down costs after premiums increased 25% in 2023

 The ABI has unveiled a series of steps the industry is taking to combat the rising costs of motor cover.

 In collaboration with its Consumer Advisory Group1, the ABI will commission research into the feasibility and impact of various social policies focused on helping low-income households manage their insurance costs.

 Alongside this, it has published a roadmap outlining 10 concrete steps aimed at tackling insurance costs for all drivers. These steps are a combination of actions that industry, government or regulators could initiate or improve. These include making more data available for consumers to understand which vehicles are more expensive to insure, Graduated Drivers Licensing to improve road safety, and the cutting of insurance premium tax (full list below).

 These actions are announced in the lead up to the publication of the ABI’s wider financial inclusion strategy. This aims to help consumers better understand and access insurance, protection and long-term savings products, which are key to households’ financial resilience.

 Members of the ABI are also committing to better explain how insurance premiums are calculated and the steps customers can take to reduce costs. This includes more detailed explanations at renewal, but also throughout the purchasing process. The ABI has also expanded its online guidance for all insurers and consumers to use.

 While motor insurance is competitively priced the industry has set a clear focus to combat recent price spikes.

 Price rises have been driven by claims cost inflation with EY estimating that in 2022 for every £1 paid in premiums, insurers incurred £1.11 in claims and expenses. They now estimate that this figure rose to £1.14 in 2023. The impact of price rises on consumers has been exacerbated by a fixed rate of insurance premium tax (12%) – introduced by the government in 1994 (at 2.5%), it has risen steeply since. IPT currently adds £67 to the average motor policy.

 Premium Finance, which allows consumers to pay monthly instead of needing to pay in one go, is another focus for the ABI as part of its package of steps on motor insurance affordability. The ABI is in discussions with the FCA and members on possible industry action on premium finance and is also considering how it can work with finance houses and brokers that are outside the ABI umbrella and therefore not in scope of any industry measures.

 Mervyn Skeet, Director of General Insurance Policy said: “We know that insurance costs are putting strain on household finances, so we’ve been working hard to find solutions. Some of these actions we can do quickly, others will require time or assistance from the regulator or UK governments.

 “Regardless, we will continue to do what we can under our new strategy to help consumers access the products that are integral to financial wellbeing and play a key role in the nation’s financial resilience.”

 Beyond the affordability of motor insurance, the ABI’s financial inclusion strategy will cover the impact of ill health on financial security and ongoing work to ensure consumers get the right advice that they need to plan their financial lives.

 The strategy formalises action already taken by the ABI to bolster financial inclusion. The ABI previously partnered with Plain Numbers and then Fairer Finance to support firms in developing clearer communications. It also ran an advertising campaign - Dad comes home - last summer aimed at explaining the role and workings of insurance and created a web hub of guidance and FAQs around motor cover. And it promotes engagement with pensions through its #PensionAttention campaign run in partnership with the Pensions and Lifetime Savings Association (PLSA).

 The ABI’s 10-Point Roadmap to tackling insurance costs

 1. Help consumers make informed decisions. The industry will do more on transparency around which vehicles are more costly to insure. For example, increasing visibility of the Group Rating system (which rates vehicles on risk) should help consumers make more informed choices.

 2.Combat vehicle theft. The ABI is exploring a partnership with the police to aid in the recovery of stolen vehicles from ports. It’s also working with vehicle manufacturers, the Mayor of London’s office, and the National Police Chiefs' Council to find more ways to prevent vehicle thefts.

 3.Tackle fraud and uninsured driving. Continuing to crack down on fraud and uninsured driving will reduce the costs borne by law-abiding drivers for their insurance.

 4.Improve road safety and road infrastructure. Through campaigns, modern safety measures and road improvement.

 5.Support new and novice drivers. Young and inexperienced drivers pose a greater risk to themselves and other road users. The phased approach of graduated driving licenses has been proven to improve safety.

 6.Reduce the impact of the Personal Injury Discount Rate (PIDR). The rate for large, severe injury compensation needs a rethink, as these costs filter back to premiums.

 7.Continue whiplash reform. Reform principles enacted for whiplash - which set reasonable compensation amounts and controlled the cost of injury claims - should be applied to similar injuries (bruised knees, sprained ankles etc).

 8.Advocate for safety-focused vehicle technology. Making assisted safety features mandatory in new cars would contribute to improved road safety. Beyond assisted systems, automated vehicles could revolutionise road safety but only if legislation ensures user and system safety.

 9.Lower Insurance Premium Tax (IPT). IPT adds £67 to the average policy. It’s getting worse as prices rise. It punishes responsible choices.

 10.Support the repair sector. Work with government, vehicle manufacturers and independent mechanics to create a robust repair sector that can fix a broader array of vehicles. This will increase competition and choice for customers.

 See here for the full details of our roadmap.  

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