Car insurance costs fall to lowest levels since 2015

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Renewal offers are falling while the cost of new policies is rising after insurers stop price walking

According to figures from the Association of British Insurers (ABI), drivers paid an average of £416 for an annual policy in the first three months of the year.

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That’s a 5% reduction from the same period in 2021 and represents the lowest average premium since the third quarter of 2015.

Figures appear to show that new legislation introduced earlier this year to abolish the ‘loyalty tax’ for customers has had an impact as prices for new policies have risen while renewal costs have fallen.

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The new rules banned insurers from selling introductory offers that charged new customers less than a renewal customer would pay for the same policy. The Financial Conduct Authority said the move would save drivers a total of £4.2 billion over the next 10 years.

Industry watchers warned it would likely simply drive up new policy prices without impacting renewal costs. ABI figures show that while new policy prices have increased, renewal costs have also decreased and the gap between the two has widened.

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The average premium paid on a new policy in the first quarter was £480, up £34 from the same quarter in 2021, while the average for renewed policies was £375, a fall of £55 is equivalent to.

The ABI said changes to the Civil Liability Act in 2021 helped deal with the high number and high cost of whiplash claims, but cost pressures on premiums persist, owing to everything from a shortage of skilled vehicle repair workers in Britain to the effects of various global crises

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An average car can contain as many as 3,000 semiconductor chips, and their shortage affects vehicle repair times, the ABI added.

The prices for paint have also risen and the vehicles are becoming more and more sophisticated and expensive to repair, it said.

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James Dalton, Director of General Insurance Policy at ABI, said: “Like other sectors, motor insurers are facing rising costs.

“While these will be extremely difficult to absorb, insurers are doing everything they can to keep rates as competitive as possible as millions of households cope with the cost of living crisis.

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“As the FCA said, the impact of its pricing rule reforms introduced on January 1 this year could result in some consumers paying higher prices if they previously benefited from significant discounts for new business.

“For some, it might still pay off to look for the policy that best suits their needs.”

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