Biggest cost in car insurance is falling - so why have premiums soared?
- Insurers are paying out fewer injury claims, the largest part of motor premiums
- But the price of car cover is at a record average high of £635 a year despite this
Car insurers are paying out fewer bodily injury claims, which make up the single biggest part of premium costs - so why have motor cover costs skyrocketed?
The average driver now pays record high car insurance premiums of £635 a year, up 53 per cent from £416 in the same period of 2022.
The single biggest component of car insurance premium costs is paying out bodily injury claims, according to the Association of British Insurers (ABI) trade body.
These make up 30 per cent of the typical driver's premium.
![Rising: Most drivers would have noticed the large leap in cover costs in recent years](https://i.dailymail.co.uk/1s/2024/07/16/15/84131315-13639757-image-a-1_1721138408919.jpg)
Rising: Most drivers would have noticed the large leap in cover costs in recent years
But the number of bodily injury claims has fallen rapidly, according to analysis of figures from the Compensation Recovery Unit (CRU) by the Association of Consumer Support Organisations (ACSO).
These claims have dropped from 667,377 a year in 2018 to 352,230 now - a fall of 47 per cent.
These CRU figures are useful because they show the number of car crash cases insurers are on the hook for once a bodily injury claim is settled - at least, for those serious enough to require NHS treatment or government benefits.
The CRU is a government department that recovers taxpayers' money that car crash victims get in the form of benefits or NHS costs.
The CRU gets this money from the insurers of the at-fault driver, and orders them to pay it to the Department for Work and Pensions.
ACSO executive director Matthew Maxwell Scott said the figures contradicted insurer claims that soaring insurance premiums are being driven by claims costs.
![Reversing: The number of bodily injury claims has been in decline](https://i.dailymail.co.uk/1s/2024/07/16/15/87401933-13639757-image-a-28_1721138517044.jpg)
Reversing: The number of bodily injury claims has been in decline
Scott said: 'Insurers have put the blame squarely on claims inflation, yet the number of claims has fallen by more than a quarter since the advent of the Civil Liability Act, which insurers lobbied hard for, and continues to fall year on year.'
Car insurance premiums have had to rise to tackle to tackle the cost of repair, replacement vehicles and theft, as well as other inflation-linked costs, according to the Association of British Insurers (ABI) trade body.
Mark Shepherd, head of general insurance policy at the ABI, said: 'The largest element of what the pool of a motor insurance premium pays for is the cost to compensate injury to other drivers, passengers or pedestrians.
'That's because serious collisions can mean life-changing injuries, with compensation sometimes running into the tens of millions of pounds.
'While the number of injury claims resulting from road traffic collisions may have reduced, the overall average cost of a bodily injury claim has risen significantly in recent years, with an increasing number of whiplash claims now coming with additional physical injuries that attract higher damages awards.'
The amount of money car crash victims get has not changed much in the past three years.
The typical whiplash claimant received £746 in Q2 2024 with a lawyer involved, compared to £723 in Q2 2023 and £671 in Q2 2022, according to the Official Injury Claim portal.
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For those with 'mixed injuries' - whiplash and another injury - these figures are £1,000, £932 and £896.
But what has changed is the frequency of claims.
In Q2 2022 there were 34,947 settled claims through the portal, rising to 148,767 in Q2 2023 and 296,288 in Q2 2024.
Shepherd added: 'A range of other factors have also been pushing up claims costs – such as above inflation increases in the cost of repairs, thefts and replacement cars.'
A recent report by accountants EY found that car insurers are losing money on underwriting, paying out out £1.12 in claims for every £1 they took in in premiums in 2023, up from £1.11 for every £1 in 2022.
However, this does not take investment returns into account, which can be a major part of the money insurers rake in.
For example, the UK's largest car insurer, Admiral, made a profit before tax of £597million in 2023, of which £111.8million came from investment returns.
Insurance insiders say part of the issue of high car insurance premiums is a lack of competition.
Although on paper there are almost 200 car insurance brands in the UK, in practice the top 10 control 70 per cent of the market through a range of sub-brands.