Why is my insurance so expensive?
Three national journalists have asked me this question over the past week and having just received my renewal notice, I’m asking it as well.
The latest Confused.com Car Insurance Price Index, in association with WTW, found that UK car insurance premiums have seen their biggest annual rise in six years. The research found that a 19% surge in the past year has meant that many motorists are paying an average of £100 more a year for their car insurance.
Meanwhile, readers writing to the Daily Mail have seen increases of over 400% with some insurers across home and motor policies. In some cases, the increase is the result of making a claim, but for many it is just an inexplicable hike, which has left them feeling that the insurance industry is making huge profits at their expense, at a time when many are struggling with the cost of living crisis.
There is the problem. It’s not inexplicable and yet the insurance industry has done a poor job of explaining what’s behind the increases. I know from working with clients in the sector that claims inflation is a huge problem. For victims of flooding, who need to be rehomed while their house is repaired, the cost of rent has gone up by 25% over the past two years, hugely adding to the cost of a claim. Likewise, a shortage of contractors due to Brexit and a shortage of building materials due to post-Covid supply chain issues, makes repairs longer and more expensive – and that is before we get on to the soaring cost of energy to dry out these homes. Likewise with car insurance, there is a shortage of replacement vehicles due to the global microchip shortage, and there is a shortage of car parts due to supply chain issues. It is more expensive and complicated to repair a car now, which is exacerbating claims costs.
Across every product line, claims are getting much more expensive and driving up the cost of insurance. We need to be better at explaining this to customers who already have a deep-rooted mis-trust of the industry.
Just this week, the ABI launched its new three-year strategy which includes improving customer trust in insurance. Specifically, it says it will strive to: Improve customer experience and understanding of new and existing products – to reduce complexity, increase relevance and deliver good customer outcomes.
Innovation has an important role to play in this. It is incredible to see how automation and AI is reducing the time and cost associated with most claims, as well as improving the customer journey. Meanwhile, insurers are developing new products for a wider range of budgets. For example, the Salvation Army recently launched a £4 a month contents insurance product for renters. In motor, new Pay by Mile and Temporary Insurance products have made having a car much more affordable for those who don’t drive much.
Household budgets are being squeezed from every side and when people see their insurance going up without explanation, they trust the industry even less. We need to be clear about what makes up a premium and why costs are going up, so our customers can understand this. We need to invest in innovation and make it clear that we are doing all we can to drive down costs in the future.