Car insurance payouts hit record £2.4bn as used prices and inflation push up bills

Insurers paid out a record £2.4 billion in motor claims in the first three months of this year as firms faced soaring costs to repair or replace damaged and stolen vehicles. 

The Association of British Insurers (ABI) said that the cost of repairs jumped by a third compared with the first quarter of 2022 as workshops faced energy inflation and other rising bills. The soaring price of used cars over recent years has also contributed to the highest pay-outs since records began a decade ago. 

The latest figure, for January 1 to March 31, includes claims for theft, vehicle repairs, replacement vehicles and personal injury and show that the value and overall number of claims settled - at 599,000 - were  both up by 14% compared with the same quarter in 2022.

However, the ABI said that changes to the law around whiplash claims appeared to be having an impact, with the value of payouts down by 11%. 

Repair costs hit £1.5bn between January and March as higher prices for energy and parts had an impact. The association said that longer repair times - linked to more complex repairs on modern cars and longer waits for spare parts - had also increased the cost of providing courtesy cars.

Alongside repair bills, the ABI said insurers faced higher costs to replace stolen or written-off vehicles. Payouts for vehicle theft reached £152 million - a 29% increase since the first quarter of 2022 - partly reflecting increases in second-hand car prices. Used car prices were actually lower in early 2023 than at the start of 2022 but are still at near-record highs, according to Auto Trader’s Retail Price Index.

In May, the ABI reported that average insurance premiums had risen 16% in the last year as insurers passed on some of the additional cost to drivers. 

Laura Hughes, the ABI’s manager, general insurance, said: “Motor insurers continue to deliver when motorists and personal injury claimants need them the most.

“Like most other business sectors, motor insurers face sustained cost pressures which they are finding increasingly challenging to absorb. Despite this they are doing all they can to ensure competitively priced motor insurance, as well as offering the best possible claims service.”

Earlier this week, insurance industry representatives appearing before the Treasury Committee denied  that firms are “profiteering” during the cost-of-living crisis.

During the hearing, Charlotte Clark, director of regulation at the ABI highlighted “significant cost pressures” including costs related to cars.

Cristina Nestares, chief executive of Admiral UK, told the hearing on Wednesday: “The average of when you pay the claim could be two years. First, because the accident can happen in the next 12 months, secondly because when the claim is paid depends on the complexity, if it’s a damage claim, windscreen or maybe if it’s a large bodily injury claim. So on average, it could take two years.”

She said two years of inflation “is what you actually need to apply to every policy. Actually you see that we’re not profiteering".