Car insurance premiums fall 12% in a year, but loyal customers are still paying more than they need to

The average cost of comprehensive car insurance has fallen to £612, down 12% in a year and 18% from its 2024 peak, according to figures from the Association of British Insurers, but the saving has gone overwhelmingly to drivers who shop around at renewal.

The fall follows two years in which premiums rose faster than at any time on record, driven by the cost of repairing increasingly complex cars, the price of courtesy vehicles and a backlog of claims from the pandemic. Insurers say those pressures have eased, with repair costs rising 3% in the past year against 16% in 2023, and that the number of claims has fallen as drivers have cut mileage.

But the headline figure disguises a wide spread. Analysis by the comparison site QuoteWell found that drivers who renewed with their existing insurer without seeking quotes elsewhere paid an average of £751, while those who switched paid £611, a gap of £140. Under rules introduced by the Financial Conduct Authority in 2022, insurers may not charge existing customers more than new ones for the same policy, but they may, and do, quote a different policy with different excesses and add-ons.

“The loyalty penalty was supposed to have been abolished, and in a narrow sense it has,” said Dr Elise Harrington, an insurance analyst at QuoteWell. “What has replaced it is a renewal quote that is technically the same price as a new customer would get for that exact product, except that no new customer would buy that exact product because there is a cheaper one on the next page. The only defence is to get three quotes every year, and most people do not.”

The best time to look is 20 to 26 days before renewal, when insurers’ pricing models treat you as an organised, lower-risk driver. Quotes obtained on the day of renewal are typically 20% to 30% more expensive. Paying annually rather than monthly saves most drivers between £60 and £90, because monthly payments are a form of credit on which insurers charge interest of 20% or more.

Other savings are less obvious. Adding a second, more experienced named driver, such as a parent or partner, can lower the premium for younger drivers, although naming someone who does not drive the car as the main driver, known as fronting, is fraud. Telematics or “black box” policies, which monitor driving, are now the cheapest option for most drivers under 25 and are also offered to older drivers with limited mileage. A voluntary excess of £250 rather than £100 cuts premiums by about 8% but should only be chosen if you could afford to pay it.

Drivers should also check whether their policy includes extras they do not need. Legal expenses cover, breakdown cover and a courtesy car can add £80 to £120 a year, and are often already provided by a bank account, a motoring organisation or a credit card.

The ABI expects premiums to continue falling slowly into next year, although it warned that a rise in insurance premium tax, which has been rumoured ahead of the budget, would add about £25 to the average policy overnight.