28/11/2023

Understanding insurance inflation: Why are car insurance premiums going up?

Have car insurance premiums gone up? The key takeaways

Rising inflation levels has led to growing costs for insurers meaning car insurance premiums have gone up.
The main causes of car insurance inflation are supply chain issues, shortages of car parts and rising repair costs which has influenced claims costs.
You can get the best level of cover for your vehicles by going through a broker like us as we work with insurers who aren’t accessible on the comparison sites.

The impact of inflation on car insurance

In this article, we will delve into the factors that have affected inflation and thus influenced car insurance premiums.

You must be thinking why car insurance premiums have gone up, and you’re right to think that. The key thing to remember is: as inflation rises, so do insurance premiums.

The Consumer Price Index (CPI) is the official measure of inflation in consumer prices in the UK. In 2022, this jumped to over 10% in 2022 – the highest level in 40 years – and it currently stands at 6.3%, according to the Office for National Statistics as of October 2023. Inflation levels have gone through the roof, there’s no denying that, but it’s promising to see the figure easing with grocery inflation back in single digits for the first time in 16 months.

Car insurance inflation: Why have car insurance premiums gone up?

The rise in car insurance premiums can be attributed to increasing inflation, which has led to growing costs for insurers. With car repair costs, motor parts and claim amounts soaring, the inflation effects on the car insurance industry is clear: it means the insurers take these rising costs into account when determining premiums.

The Association for British Insurers (ABI) reports that the cost of replacing parts has gone up between 12% and 21% in the last year – further showing the costs incurred by insurance companies.

How inflation levels have been affected:

The bottom line is that costs are way up for businesses in general, and these costs are being passed onto consumers. As the general cost of goods and services goes up, so does the cost for insurers to settle claims, which then gets passed on to consumers through higher premiums.

Some of the factors that have affected inflation levels:

1. Global supply chain chaos

The pandemic upended global supply chains through factory shutdowns, labour shortages and transportation issues. This constrained the supply of goods when demand rebounded as economies reopened.

2. Labour shortages driving up wages

Layoffs and staff shortages during the Covid-19 pandemic have led to a tight labour market in the UK across many sectors. Businesses have been forced to raise wages to retain and attract staff. As worker pay increases, this is passed on to customers via higher prices, adding to the inflationary mix.

3. Currency depreciation takes a hit:

Fluctuations in the exchange rate has impacted the prices of imported goods and services from abroad, thus influencing the overall level of inflation.

What you can do to protect your assets

In the midst of inflation, the worth of your personal treasures – be it your cherished classic or your specialist vehicle(s) – can fluctuate without you realising it.

Our advice to you: reassess the value of your assets.

Mark Wilkinson, Managing Director at Heritage Insurance comments: “The surge in car insurance premiums is shaped by multiple factors. Undoubtedly, the impact of inflation has rippled through every aspect of our lives, including insurance premiums.

“One thing to remember when shopping around for your next car insurance policy is to make sure you don’t fall victim to underinsurance. We advise ensuring you get all the necessary cover you need in your policy, and your vehicle is accurately valued in the event of damage or theft.”

You can get your vehicle(s) accurately valued through our Free Agreed Value service.

Insurance is there for the maybes that can sometimes become realities, and for that reason we’ve chosen insurers who are known for a really good claims experience and will take care of you if something does go wrong.

Speak to us about your insurance needs

By insuring with us, you will benefit by accessing insurers that aren’t accessible on comparison sites and we would could contact a range of insurers on your behalf, to get you the best level of cover for a competitive price.

Would you like to speak to us about your car insurance needs? If so, please fill in the form below and the team will be in touch to discuss it with you.

Car Insurance Inflation FAQs

Have car insurance premiums gone up?

What are the main causes of car insurance inflation?

Does car insurance go up in line with inflation?

Yes, they have. Martin Lewis suggests that car insurance premiums have soared by up to 61%, as of late 2023. Whilst this is a big figure, car premiums will vary depending on the vehicle and its risk factor.

The main causes of car insurance inflation are: supply chain issues, rising labour costs, parts shortages and severe weather events which has influenced car insurance claims costs.

Yes. As inflation rises, so do car insurance premiums. Rising inflation levels affected by parts shortages and rising repair costs have a direct impact on premiums as insurers’ claims costs increase significantly.