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31 Mar 2022

Car insurance prices continue to rise: how to get a good deal when renewing

Premiums up by £60 year-on-year as the cost of running a car increases by £291

Car insurance premiums are increasing, with drivers now paying an average of £60 more than a year ago.

The rises come despite new rules being introduced to make insurance pricing fairer.

Here, Which? explains why the cost of car insurance is rising, and the steps you can take to secure a good deal when renewing your policy.

Premiums up as the cost of running a car rockets

Car insurance premiums increased by £60 year-on-year in February, according to new figures from the price comparison site Compare the Market.

Drivers pay an average of £673 a year for their insurance, up from £613 in 2021. Young drivers aged 17-24 face the biggest premiums, averaging £1,154.

Compare the Market estimates that the overall annual cost of running a car has risen by £291 in the last 12 months, to reach £1,861.

Insurance premiums have contributed to this rise, butthe soaring cost of fuel has had the biggest impact, as shown in the chart below.

How the end of the 'loyalty penalty' affects insurance pricing

In January, the Financial Conduct Authority (FCA) introduced new rules to make insurance pricing fairer.

The changes mean that insurers can no longer quote existing customers a higher price than they would a new customer.

The FCA estimated the changes would result in a saving of at least £56 for customers who had renewed their car insurance five times or more.

There is a downside, however. The abolition of the loyalty penalty may protect loyal customers who stay with one insurer, but it also means that those who regularly shop around will no longer benefit from new customer discounts.

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The reasons behind rising insurance premiums

The end of the loyalty penalty isn't the only factor influencing the cost of car insurance.

Data from the Association of British Insurers (ABI) shows that premiums were already rising towards the end of last year, before the changes came into force.

The comparison site MoneySupermarket found premiums increased by £32 in the last quarter of 2021, while Confused.com reported a £25 rise.

The ABI says rising prices can be explained by a range of 'cost pressures', including the rising average cost of claims.

Other factors include supply-chain issues (resulting in delays accessing replacement parts), a rise in the value of second hand cars (resulting in higher payouts), and traffic returning to pre-pandemic levels (resulting in a higher number of claims).

How to get a cheaper deal on car insurance

If your car insurance is coming up for renewal soon, don't panic.

Insurers are still looking to be competitive on pricing, and with dozens of providers to choose from, there are plenty of good deals available.

As a starting point, keep the following five tips in mind when looking for car insurance.

1. Search the whole market

Your insurer should send you a renewal quote around a month before your policy is due to end.

At this point, start shopping around on comparison sites to see if you can get a better deal elsewhere. Don't forget to check out providers which don't appear on comparison sites, such as Direct Line and NFU Mutual.

Once you've found the right deal, you can either press ahead and inform your current provider that you'll be leaving, or call them to see if they're willing to drop their price to make you stay.

2. Don't take out unnecessary add-ons

Comprehensive policies come with a range of optional add-ons, such as legal expenses insurance, breakdown cover, key cover and personal accident cover.

In some cases, you might already be protected (for example if you have breakdown cover through your packaged bank account). With this in mind, think carefully before accepting optional extras.

3. Set the right excess

When you take out a policy, you'll set a 'voluntary' excess on top of the 'compulsory' excess set by the lender. The combined amount of these two figures is what you'll need to pay up-front if you make a claim.

Voluntary excesses vary significantly, with sums such as £100, £250 and £500 commonly available. A higher excess might lower your premium slightly, but setting it too high may be a barrier to making a claim in the future.

Woman looking for car insurance online

4. Pay annually rather than monthly

Paying monthly for your car insurance will help you spread the cost, but it'll you'll pay much more over the course of the year.

Monthly payment plans effectively involve taking out a loan with the insurer, and interest rates can be high. If you can pay up-front, it's well worth doing so.

5. Find the right insurer

The best car insurance policy isn't always the cheapest. Before settling on a provider, you should ensure it offers a comprehensive enough policy that provides excellent coverage, and that it'll be there for you if you need to make a claim.

We've done some of the hard work for you. For our 2022 car insurance reviews, we rated 73 elements of car insurance policies and spoke to thousands of customers who'd recently made a claim.

Find out which provider topped the charts in our guide to the best and worst car insurers.

Which? Limitedis registered in England and Wales to 2 Marylebone Road, London NW1 4DF, company number 00677665and is an Introducer Appointed Representative ofInspop.comLtd for the introduction of non-investment motor and home insurance products (FRN 610689).Inspop.comLtdis authorised and regulated by the Financial Conduct Authority to provide advice and arrange non-investment motor and home insurance products (FRN310635) and is registered in England and Wales to Greyfriars House, Greyfriars Road, Cardiff, South Wales, CF10 3AL, company number 03857130.Confused.comis a trading name ofInspop.comLtd.