While motorists have benefitted from falling petrol and diesel prices this year – helping to offset some of the increased cost of the weekly shop – many are finding their motor insurance quotes have gone through the roof, typically with no explanation.

According to the ONS (Office for National Statistics), car insurance prices have jumped more than 40% in the last 12 months, while the ABI (Association of British Insurers) reckons the average premium for private comprehensive motor cover was £478 in the first quarter, 16% higher than a year ago and the highest price since the fourth quarter of 2019.

However, The Guardian reports irate customers of Direct Line (DLG) and Saga (SAGA) have been quoted renewal prices ranging from 50% to 75% above their existing policy.

In theory, this should mean motor insurers are raking it in, yet their share prices tell a very different story with only Sabre (SBRE) in positive territory so far this year.

The companies claim not to be profiteering, and under FCA (Financial Conduct Authority) rules introduced in January last year they are banned from ‘walking up’ renewal prices, so what is going on?

As the ABI points out, the ‘walking up’ rules don’t mean a cap on prices, so the insurers are hiking quotes for new as well as existing customers to cover higher claims costs and volumes.

Higher prices for paint and materials as well as courtesy cars, plus delays in getting parts – in particular computer chips – which are affecting 40% of repairs, are all blamed for the rise in insurance prices.

The ABI estimates motor claims cost the insurance industry £2.4 billion in the first quarter    of 2023, 14% more than the same period a year ago and the highest level since it started keeping track of the data a decade ago, with the cost of vehicle repairs up 33% to £1.5 billion, also a record.

If the firms were hoping analysts would back them up, they barely have a good word to say with Citigroup cutting its recommendation on Admiral Group (ADM) from ‘hold’ to ‘sell’ last month and JPMorgan putting Admiral and Direct Line on ‘negative catalyst watch’.

Then again, the companies have hardly helped themselves of late with Direct Line being told last week by the FCA it needs to go back through its records and compensate some customers for underpayments on written-off cars between 2017 and 2022, and Admiral’s UK insurance head Cristina Nestares selling off over £700,000 worth of the company’s shares in May.

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