The rising cost of car insurance has triggered a barrage of complaints in the cost of living crisis, Britain’s financial watchdog told lawmakers on Wednesday, as the sector insisted that prices remain at 2018 levels in real terms.
Matt Brewis, director of insurance at the Financial Conduct Authority (FCA), said he has heard “heartrending stories” from people trying to make ends meet as costs such as insurance rise.
“It is clear there is a significant increase in pricing of motor and home insurance over the last two to three years,” Brewis told parliament’s Treasury Committee hearing on the insurance market.
“Motor insurance is the one where we are seeing the greatest level of complaints,” Brewis said, adding that price increases were due to supply chain issues, complexity of vehicles, and the number of claims.
The sector had also not done a good job in forecasting inflation and its impact, prompting it to recoup significant underwriting losses and price in future inflation, Brewis said.
“It is a very competitive sector,” Brewis said, adding there are over 48 active insurers.
The committee said inflation in car insurance, which all motorists have to buy, hit a high of 50% in the past year, citing Britain’s Office for National Statistics.
The publication Which? on Wednesday said some people who can only afford car insurance through monthly installments are being charged “eye-watering” amounts of interest of up to 30%, on an annualized basis.
David Mendes da Costa, principal policy manager at Citizens Advice, said it was difficult for consumers to disentangle what was pushing premiums higher, with people of color being charged more for car insurance than white people, largely due to where they lived, da Costa told the committee.
Charlotte Clark, director of regulation at the Association of British Insurers, said premiums were catching up with costs such as repairs and inflation, while profits “are not there.”
Motor insurance prices fell 20% during the COVID-19 pandemic as fewer people drove, and the real price of insurance is now about where it was in 2018, Clark said, adding that collecting payments monthly was more expensive for insurers.
“It’s an incredibly competitive market,” said Colm Holmes, CEO of German insurer Allianz in Britain.
Allianz does not collect data on customer ethnicity, and a customer’s postcode and its data on accidents and probability of criminality, is the key risk and pricing determinant, Holmes said.
(Reporting by Huw Jones; editing by Jonathan Oatis)