Car insurance prices may rise due to high used car prices, warns Direct Line | Evening Standard
ne of UK’s largest car insurers has warned that motorists could see an increase in premiums due to the soaring price of used cars.
Direct Line said higher prices were needed to combat shortfalls in covering claims for increasingly expensive second-hand cars.
Current price rises across the market are not enough to cover “the level of claims inflation” driven by “continued elevated used car prices,” Direct Line said.
The average price of a used car has risen for 24 months in a row, according to Auto Trader, adding £4,400 to the cost of an average used vehicle. Prices rocketed due to a combination of higher demand as people avoided public transport during the pandemic and problems with supply of new cars, first due to factory shutdowns and more recently due to supply chain issues and semiconductor shortages.
Elevated used car prices impacted Direct Line’s total loss and theft claims in general in the first quarter of the year, while supply chain disruption delayed the time it took to repair broken down motors.
The Bromley-based company, which owns the Churchill insurance brand, said written premiums were down 2.4% at £734 million in the first quarter. Motor premiums slid 5% and home insurance income decreased by 10%.
The company was hit by the introduction of new Financial Conduct Authority rules in January that banned insurance companies from raising the premiums of current customers across motor and home insurance.
Penny James, CEO of Direct Line Group, said the results were “broadly in line with expectations”.
“In an important quarter for motor and home markets, prices adjusted for the introduction of the FCA Pricing Practices review, but we believe have not fully reflected claims inflation,” James said.
“In this context, we achieved a lot, pushing forward key elements of the strategy, increasing customer retention in motor and home and delivering double-digit growth in commercial.”
The insurer said damage from storms Dudley, Eunice and Franklin were now expected to be around £40 million, compared with an early estimate of £30 million to £40 million, across its home and commercial divisions. Claims should be covered by its weather budget of £73 million for the year.
Shares in the FTSE 100 group dropped more than 6% in early trading. Rival Admiral saw shares drop 3.8% on the outlook for the sector.
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