The Government is ordering a probe into car insurance premiums rising by a fifth in TWO years

The government demanded answers as to why car insurance costs have increased by 21 percent in the last two years.

Insurers will also be asked about those most affected by rising costs, including ethnic minorities, people on lower incomes and older and young drivers.

Transport Secretary Louise Haigh and Economy Secretary at the Treasury Tulip Siddiq have set up the task force.

The group will bring together industry groups and consumer leaders such as the Association of British Insurers (ABI), Citizens Advice, Which? and Compare the market as well as insurance regulators.

Motor insurance premiums have increased by an average of 21 percent since June 2022, according to analysis by the Financial Conduct Authority (FCA).

Alternative ABI data suggests these contributions have actually increased by 48 per cent, from £470 per year in June 2022 to £622 per year in June 2024.

This is significantly higher than in comparable economies such as Germany, France, Spain and Italy.

The motoring body says the combined cost of car tax and insurance has increased by 224 percent in the decade ending September 2024.

The new task force will identify the causes of rapidly rising premiums and agree solutions to keep costs under control.

Factors driving up insurance costs include inflation, rising car thefts, repair costs for more advanced vehicles and increasingly potholed roads.

The group will also assess whether consumers are getting fair value for money, taking advice from regulators, the FCA and the Competition and Markets Authority (CMA).

Transport Secretary Louise Haigh said: “Car insurance is a necessity, not a luxury. Access to economic opportunities is essential, which is why the current government is trying to control costs.

“That's why we're taking direct action to bring insurance companies and regulators to the table to discuss ways to curb rising costs.”

Is the increase in transport premiums unfair?

Some experts in the world of motor insurance believe that much of the increase in premiums is due to insurers' own inefficiencies, for example in properly understanding and pricing risk.

Others say there is a “follow the leader” effect among auto insurers, where one company raising prices causes others to follow, and after years of fierce price competition, it's hard to resist.

Similarly, insurers have been criticized for making radical statements about the difficult situation in the sector. The ABI often points out that, according to EY consultants, insurers paid out £1.13 in claims in 2023 for every £1 of premium collected.

However, critics argue that these amounts do not include insurers' money from investments, which can be huge.

Matthew Maxwell Scott, executive director of the Association of Consumer Support Organisations, said: “It is regrettable that the promised CMA/FCA inquiry, which would be appropriately independent, has been shelved in favor of a largely industry-led approach.

“Insurers made a fortune during the pandemic, but management largely failed to predict the direction of the post-pandemic market, and customers paid the price in rising premiums.

'Given that motor insurance is a compulsory product, insurers need to be much more transparent about pricing, especially when it comes to the return on investment and the profits they make from customers who choose to pay their premiums monthly.'

Critics also say that increases in car premiums belie the fact that the most important thing that pays for car insurance premiums – personal injury claims – are declining.

John Kushnick, legal director of the National Accident Hotline, said: “While response and “direct action” are welcome, this task force must get to the heart of rising premiums. The Department of Transportation has found that certain factors, such as the car theft epidemic and the rate of inflation, are causing insurance premiums to increase.

“Ultimately this is a case where car insurance payouts in the UK are lagging far behind the rising costs of insurance cover and the reason for this is the greed of insurers.

“The ABI tried to blame a non-existent compensation culture by drastically changing the rules to make it more difficult to pursue claims, while premiums continued to rise.

“Indeed, to justify removing the right to recover legal costs in whiplash claims, insurers promised to cut premiums by a paltry £35, but even this has not materialised.”

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