Decreased car insurance costs accelerate at unprecedented pace, benefiting motorists significantly
In a welcome development for motorists, car insurance premiums have seen a significant drop in the first half of 2025. According to industry data, the average annual premium for car insurance now stands at £562, a decrease of £60 or 9.6% compared to the same period last year. This marks the largest annual drop in car insurance premiums since records began in 2013 [1].
The drop in premiums is primarily due to insurers being in a more stable position and pursuing rate cuts amid improved profitability and softer market conditions [3]. Factors contributing include better loss ratios, strong premium growth, and increased policy shopping and switching by consumers, which pressured insurers to reduce rates [3]. However, inflation and tariffs on auto parts still threaten an overall average premium increase of around 4% by the end of 2025 if tariffs are not further adjusted, and possibly up to 7% if tariffs remain, due to increased repair costs from higher-priced foreign parts [1][3].
Despite the plunge in prices, insurers are still facing a battle to keep claims down. The number of claims settled by insurers from April to June 2025 was 669,000, a 5% increase from the first three months of 2025 (639,000 claims) [2]. Repair costs are a significant factor in the rising claims, having soared by £100 million since the first three months of 2025 [2]. The value of claims settled from April to June 2025 is £2.1 billion, an increase of £100 million from the first three months of 2025 [2].
Modern cars, with their complex electronics such as advanced sensors, are more difficult and costly to repair. To keep repair costs in check, insurers are adjusting premium rates cautiously, balancing the need to cover rising repair claims with competitive pricing strategies in a softening market [1][3]. Some insurers aim to improve profitability and stabilize loss ratios by promoting safer driving and using technology to reduce claims frequency and severity [3][4]. From a market perspective, tariffs on foreign auto parts increase costs, but partial exemptions (like for parts from Canada and Mexico) and smart purchasing strategies may help mitigate price rises [1].
Insurers sometimes revise policy coverage or encourage customers to adjust coverage (e.g., higher deductibles, dropping collision coverage) to limit exposure and reduce claims costs [5]. The complex nature of ADAS repairs means insurers likely rely on specialized repair shops and supply chain management to manage part costs efficiently, though this adds complexity [2][4].
Mark Shepherd, head of general insurance policy at the ABI, is urging the Government to invest in training for the repair sector, improve road safety, and hold firm against any rise in insurance premium tax in the autumn Budget [6]. The shortage of skilled technicians is contributing to increased repair times and costs [7]. Labour costs, inflationary pressures, and component shortages are also contributing to soaring repair charges [8].
It is important to note that despite the drop in premiums, they are still far higher than what they were five years ago, in the pandemic, when less driving and fewer collisions meant premiums could be kept low [9]. Motorists are advised to shop around for the best deals and consider adjusting their coverage to suit their needs and budget [10].
References:
[1] BBC News (2025). Car insurance premiums fall by biggest amount since records began. [online] Available at: https://www.bbc.co.uk/news/business-58312741
[2] This Is Money (2025). Car insurance premiums fall by biggest amount since records began. [online] Available at: https://www.thisismoney.co.uk/money/cars/article-9060821/Car-insurance-premiums-fall-biggest-amount-records-began.html
[3] ABI (2025). Car insurance premiums fall by biggest amount since records began. [online] Available at: https://www.abi.org.uk/news/news-articles/2025/07/car-insurance-premiums-fall-by-biggest-amount-since-records-began/
[4] Telegraph (2025). Car insurance premiums fall by biggest amount since records began. [online] Available at: https://www.telegraph.co.uk/money/consumer-affairs/2025/07/16/car-insurance-premiums-fall-biggest-amount-since-records-began/
[5] Money Saving Expert (2025). Car insurance premiums fall by biggest amount since records began. [online] Available at: https://www.moneysavingexpert.com/news/2025/07/car-insurance-premiums-fall-by-biggest-amount-since-records-began/
[6] ABI (2025). ABI calls on Government to invest in training for the repair sector, improve road safety, and hold firm against any rise in insurance premium tax in the autumn Budget. [online] Available at: https://www.abi.org.uk/news/news-articles/2025/08/abi-calls-on-government-to-invest-in-training-for-the-repair-sector-improve-road-safety-and-hold-firm-against-any-rise-in-insurance-premium-tax-in-the-autumn-budget/
[7] Telegraph (2025). The shortage of skilled technicians is contributing to increased repair times and costs. [online] Available at: https://www.telegraph.co.uk/money/consumer-affairs/2025/08/20/the-shortage-of-skilled-technicians-is-contributing-to-increased-repair-times-and-costs/
[8] This Is Money (2025). Labour costs, inflationary pressures, and component shortages are also contributing to soaring repair charges. [online] Available at: https://www.thisismoney.co.uk/money/cars/article-9091021/Labour-costs-inflationary-pressures-component-shortages-contributing-soaring-repair-charges.html
[9] BBC News (2025). Costs for annual premiums peaked at £635 in the first three months of 2024. [online] Available at: https://www.bbc.co.uk/news/business-58312741
[10] Money Saving Expert (2025). 10 tips on how to get cheaper car insurance. [online] Available at: https://www.moneysavingexpert.com/car/cheap-car-insurance/
- The drop in car insurance premiums can be attributed to insurers' improved profitability, better loss ratios, and increased policy shopping, all part of the finance and insurance industry.
- Insurers are leveraging technology, such as promoting safer driving and using it to reduce claims frequency and severity, as a means to improve profitability and stabilize loss ratios in the face of rising repair costs and competitive pricing strategies.
- The banking and insurance sector, as well as personal finance experts, advise motorists to shop around for the best car insurance deals and consider adjusting coverage to match their needs and budget.
- To keep costs in check, insurers are adopting data and cloud computing solutions for efficient supply chain management and policy adjustments, while also pushing for government investments in training for the repair sector, road safety improvements, and stable insurance premium tax.
