In recent months, there has been a significant rise in prices across the entire motor insurance industry, leading to some difficult conversations. Many customers are wondering why their premiums have risen, despite never having made a claim.
At present, there is upward pressure on prices across all levels of motor insurance, and unfortunately, taxis are not exempt from this trend. But what are the reasons behind this spike in prices?
Data from May 2023 released by the Office for National Statistics (ONS) shows that motor insurance has far outstripped overall inflation, with a rate of 43.1% compared to an inflation rate of 8.7%. The Association of British Insurers (ABI) reported a lower figure of 16% for the same period, but this only reflects what customers pay for insurance, not what they are quoted. Private car insurance comparison site Confused.com‘s tracker suggests that car insurance inflation was 20% for the first quarter of the year, with an average price of £657 per year. Recent reports in the mainstream media suggest that average private car premiums have exceeded £500 for the first time.
As we all know, taxi and private hire insurance is always more expensive than private car insurance, and it has followed a similar pattern, albeit lagging behind by two or three months as it typically does.
So, what are the reasons behind this trend? The most obvious one is that insurance companies are facing increased operating costs in areas such as wages, energy bills, and raw materials needed for repairs. As a result, they are forced to pass on these costs in the form of higher prices.
Second Hand Cars
Insurance claims often require courtesy cars. However, the price of second-hand vehicles has recently spiralled, as evidenced by the May ONS data that showed second-hand cars to be among the “largest upward contribution to the monthly change in Consumer Price Index annual rates”. According to Auto Trader, the average price of second-hand vehicles has increased by 30% in the last three years. As a result, insurers have to pay more to hire second-hand vehicles to offer to customers while their own cars are being repaired.
Spare Parts
According to the ABI, the costs of raw materials such as metal and paint are rising at rates well above general inflation. Additionally, repairs for modern cars with advanced technology and safety features can be even more expensive, and there is a shortage of semiconductors needed for smart features inside modern cars worldwide. Although production is mainly in Asia and the US, western states are attempting to increase their own manufacturing capacity. However, this will take time to develop. As a result of these supply chain shortages and others, parts are taking longer to arrive, forcing customers to use hired cars for longer periods, adding to the spiral of increased costs.
Energy Costs
Like most businesses, insurance companies are facing high energy costs, which are currently at record highs due to wholesale price rises and the war in Ukraine. As auto repairers pass on their own higher energy bills and labour costs, insurers are also facing higher bills and wages to pay.
“Loyalty Premium” ban
In January 2022, the Financial Conduct Authority (FCA) prohibited motor and home insurance providers from charging existing customers more to renew their policies. This practice, called the Loyalty Premium, involved insurers offering cheap quotes to lure new customers, but increasing renewal premiums each year. Because customers are also cutting back on expensive add-ons, insurers have had to raise overall prices to maintain profitability on the core product.
What can we do to help?
As a broker, we are not tied to a single insurance company and work with an extensive panel of insurance companies. This allows us to promise you that we will check this panel for both our new quotes and renewals, ensuring that we get you the most competitive quote possible. With our strong relationships with all our insurers, we know which ones may be willing to negotiate a little, so you won’t just get “screen rates” with us. We are not a call centre, but rather a team of seven with over 50 years of experience in writing taxi and private hire insurance.
When you call us, a real person will answer your call, and you won’t have to navigate through a list of options. Speaking to the same small team throughout the year will save you time and effort. While we cannot promise a cheaper premium than last year, we can ensure that we will get you the best possible rate available.
We encourage you not to be too despondent, as insurance premiums in our industry have a tendency to fluctuate. This won’t last forever!
