UK motor insurance prices rise 30% y/y, outpace core claims costs

UK motor insurance policy inflation ticked ever higher in December, stretching another 1.3 percentage points from the November reading to a 29.8% annual rate of increase, the UK's Office for National Statistics reported Wednesday (January 18).

Motor insurance inflation had been single digit as recently as June 2022 and had been deflationary just one year prior. Prices have grown each month at an average rate of 2.8% over the course of the second half of 2022.

It's the highest rate of annual inflation for motor insurance since the 2010-11 peak of the post financial crisis period of heady motor policy inflation. The price spike has long since outclassed the 2016-2017 flirt with double digit annual inflation rates.

Key elements of automotive claims costs remain elevated, but are now comparatively stable with inflation readings in single digit territory. Maintenance and repair costs are the current menace, having ticked up consistently in 2022 to what is now an 8.3% annual pace.

But replacement auto costs are easing after a period of heady inflation and inflation on spare parts and accessories never really caught on to exceed headline inflation readings. Used cars remain expensive overall, but have enjoyed four months of deflationary readings as prices came down from a Q1 2022 peak. New car price inflation at 6.7% in December is well within a range set since May. Spare parts and accessories are seeing price increases below 4%, below readings commonly visible in H1 2022.

The UK's Consumer Prices Index (CPI) rose by 10.5% in the 12 months to December 2022, down from 10.7% in November, the second consecutive decline from an October peak. The UK's additional CPIH measure, which includes more housing costs, was also off a tick.

Transport, particularly motor fuels, clothing and footwear, and recreation and culture offered the most downward pressure, partially offset by rising prices in restaurants and hotels, and food and non-alcoholic beverages, report authors said.

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