Why is car insurance so expensive?

If you're left out of pocket paying high premiums on your car insurance, then read our guide to discover the reasons why and how you could save.


You might well accept that car insurance will take a big chunk from your budget just the same as for many other motorists. But have you ever wondered why car insurance can be so expensive? There are a number of factors that will affect the cost of your car cover premium.

While some factors will be in your control, there are others that aren’t. On top of that, you and other decent drivers might be bearing the brunt as a result of devious drivers willing to break the law. Read our guide to find out what pushes your premiums up and how you can go about trying to bring them down.

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While the number of car insurance claims is rising, so too is the amount of money being paid out in compensation by the insurers. With so much money being handed out, this has a knock-on effect and causes insurers to increase insurance premiums.

For example, claims relating to whiplash, a common injury sustained in car accidents, cost insurers heavily. Because whiplash isn’t visible on scans, tests or X-rays, it makes diagnosing whiplash extremely difficult. While many whiplash claims will be genuine, there will be others that aren’t. This leaves insurers open to exploitation with little choice but to pay out for these types of claims. In order to recoup these losses, premiums rise as a result.

The government is looking at ways to cap the amount of compensation paid out for whiplash injuries in England and Wales but plans have been postponed until 2020.

Insurance fraud

With insurance fraud so prevalent in the UK, insurance companies are keen to weed out the false claims from the genuine ones.

CUE Check or the Claims and Underwriting Exchange database was set up in 1994 registering all claims made in the UK relating to personal injury, travel, home and motor insurance. It was launched to help insurers keep track of claims and to reduce insurance fraud as all incidents are recorded whether they result in a claim or not.

Similarly, to combat false claims, the Insurance Fraud Register (IRF) was created in 2013, made up of a list of people that have committed insurance fraud. It’s hoped that this register will help insurers detect fraud much earlier and avoid paying out huge amounts in compensation.

Referral fee ban

Currently, car insurance companies can sell details to personal claims solicitors wishing to process compensation claims for personal road traffic injuries. However, the government wants to ban these referral fees in addition to restricting the amount solicitors charge people in fees for these types of claims. If implemented, these measures could help to reduce the UK’s current love affair with claiming compensation, which could, in turn, lead to lower insurance premiums.

Uninsured drivers

By law, you’ll need at least third party car insurance to be on UK roads. But despite this law, there are many that choose to ignore this and drive uninsured. These uninsured drivers may think that they are safe but in actual fact, it is this group of drivers that are pushing the cost of car insurance premiums up.

When an insured driver is involved in a car accident with an uninsured driver, the insurance company ultimately loses money because it is still required to protect its policyholder and cover the cost for any repairs for the damage caused or medical expenses for any injuries sustained.

Unfortunately, that loss is passed on to other insured motorists through their increased premiums.

It is illegal to drive your car on UK roads without having at least third party car insurance cover.

All drivers must take full responsibility for insuring their cars at all times as detailed in the Continuous Insurance Enforcement legislation, which has been enforced since 2011. This means insuring your car, even if it’s out of use in your garage.

You can avoid having to insure or even tax your car if it’s out of action and locked away by legally declaring your vehicle as being off the road. The DVLA (Driver and Vehicle Licensing Agency) refers to this as statutory off road notification or “SORN”.

While your vehicle is registered as SORN, you will need to make sure that your car is not driven by anyone or parked on any public roads. It will only be allowed to be stored on private land, on a private driveway or inside a garage.

Ignoring this could lead to hefty fines or worse, you being charged with an offence.

Insurance premium tax

When you take out car insurance, there’s a type of tax called Insurance Premium Tax (IPT) which has been decided by the government and included in your premium. It’s not only car insurance but other products too such as home, pet and travel insurance. Unfortunately, this tax has risen since it was introduced in 1994 as a way of ensuring the insurance industry pays tax. IPT currently stands at 12% but could rise in line with VAT, which is currently 20%.

How to save on your car insurance policy

  • Choose a cover level that suits you. Contrary to what you might expect, comprehensive cover can be cheaper than third party (TP) or third party, fire and theft so it’s always worth checking. This is because of the risk profile of many people who typically get TP.
  • Increase security. If your car is not currently fitted with an alarm, think about adding one to reduce your premium.
  • Have a secure location to park your car. Cars kept in a garage or on a secure driveway are usually cheaper to insure.
  • Limit your mileage. If you start working part-time or your long commute becomes much shorter, letting your insurer know about a reduction in your mileage could result in cheaper insurance.
  • Increase excess. Agreeing to pay a bigger voluntary excess could make your overall premium cheaper. But remember that your insurer won’t pay out for a claim that costs less than your excess. So be careful about making it too high, as it could leave you out of pocket if damage occurs.
  • Add experienced drivers. Adding an older and more experienced driver to your policy could help to lower the premium.
  • Limit optional extras if you don’t need them. Think carefully about which optional extras you really want as adding extra protection to your policy will generally push the price up too.
  • Advanced driving skills. You could be in line for a discount with certain providers by taking an advanced driving course such as those offered by the Pass Plus scheme.
  • Avoid paying monthly. If you can, try to pay for your premium in one go as you’ll pay interest if the premium is spread out over the year.
  • Pick a smaller car. Choosing to drive a small and safe car is likely to lower your premium.
  • Limit modifications. Any modification made to your car to make it look better or drive faster is likely to increase your premiums so think carefully before making any changes.
  • Consider telematics insurance. Having a “black box” fitted to your car to monitor your driving could result in discounts if you drive safely.
  • Shop around. Don’t simply choose to renew your car insurance when it’s up for renewal as you could end up paying more than you need. Shop around and compare your options to find the best deal. Keep in mind that the cheapest policy isn’t always the best policy so check the cover details carefully.

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