After a challenging year for UK drivers, many are wondering what 2025 will bring for car insurance premiums. With record-breaking costs in 2024, driven by inflation, high-tech vehicle repairs, and rising claims, motorists are feeling the pinch.
However, changes on the horizon—including adjustments to compensation calculations and evolving market conditions—could bring a glimmer of hope. Buckle up, as we explore what the road ahead has instore for your car insurance premiums.
What happened last year?
In 2024, we saw record-high insurance premiums. With average costs reaching £1,361, that meant a staggering 40% increase since 2022. Factors such as inflation, rising repair costs for high-tech vehicles, and prolonged claims settlements contributed significantly to this surge.
And all these pressures meant insurers spent more on claims and costs. Data from the Association of British Insurers (ABI) shows insurers paid out £3bn in motor insurance claims in the third three months of 2024, up 14% on the £2.5bn paid during the same quarter last year. The average claim paid to customers remained at £4,800 between the second and third quarter of this year.
Factors such as where you live, your age, and your driving history all influence how much you pay for car insurance.
According to Confused’s data for the third quarter of 2024, Inner London tops the charts as the priciest area for car insurance, with an average premium of £1,357. In contrast, Wales offers the cheapest rates, where the typical premium is £682—almost half the cost compared to London.
Younger drivers face significantly higher costs for vehicle insurance. This is because insurers view less experienced drivers as a higher accident risk and adjust premiums to reflect that. For instance, a 17-year-old typically pays around £2,727 annually—a 4% increase from the previous year—making them the only group to experience a rise in costs over the last 12 months.
As drivers gain experience, premiums generally decrease. By age 23, the average cost drops to £1,671, and by the time drivers reach 45, the average premium is just £814.
Mustard’s data, conversely, showed that under 25’s faced lower than average rises of 11% for 2024, however the average premium still cost £1,719. The comparison site’s research showed how over 50s saw a much bigger increase in their premiums – 16.5% to an average of £434. That’s still the lowest cost of any age group, so experience clearly still counts for something!
What does 2025 have in store for your car insurance?
After one of the most expensive years on record for drivers, can we expect better conditions this year? Well, some relief may be in sight as economic conditions and government regulations shift.
A potential price drop could come about due to a change in how personal injury compensation payouts are calculated. If you are found responsible for an accident that causes injury to another person, they have the right to receive compensation. When your car insurance policy includes personal injury coverage, the insurer is responsible for covering these payments. The amount of compensation is calculated using the Personal Injury Discount Rate (PIDR).
The PIDR primarily applies in cases of severe, life-altering injuries and is used to estimate how much the payout could grow if invested over time. Until now, the PIDR was set at -0.25%, which increased costs for defendants.
However, from January 11, 2025, the rate will rise to 0.5%. This adjustment, driven by improving financial market conditions, will reduce costs for insurers and, in turn, car owners. The PIDR, determined by the government, is reassessed every five years.
Analysis by price Waterhouse Cooper indicates that this change could see car insurance premiums drop by an average of £50. And while a decrease is welcome, for most people that will only be a drop in the ocean.
Other experts are less convinced, with some still predicting a 6% increase in average premium prices. But this is still a slowdown compared to the soaring costs of the year just gone.
Winter weather woes
While there are road risks year-round, winter weather can be particularly dangerous for vehicles – and homes! Since October, we’ve already battled Storms Ashley, Bert, Conall and Darragh. And the disruption has been devasting.
From flooded homes, to fallen trees and debris on the road, the risks to your property – your car included – are increasingly tied to extreme weather events. Winter snow, ice, storms and heavy rainfall can cause severe damage to your car, including engine failure, malfunctioning brakes, broken lights and rust. And of course, potholes are rife this time of year, posing an extra risk when you’re on the road.
So, is your cover up to scratch?
The new year is a good time to review your car and home insurance policies, to make sure they’re truly up to date and properly protecting you, based on your needs. With all those lovely presents from under the tree now unwrapped, you could be underinsured. Meanwhile, your motor policy might not have the right level of cover for your lifestyle.
How to find cheaper car insurance
- Speak to a broker – brokers will help you find the right balance of making sure you are suitably covered for what you personally need, while avoiding costly underinsurance.
- Don’t leave it ‘til the last minute – you can start looking in the months leading up to your renewal date. Generally, the later you leave it, the more you’ll end up having to pay.
- Protect your rewards – build up and protect your no-claims bonus to get the best discounts.
- Check your vehicle details – having the right valuation of your car, the right mileage, and correct class of use, can all help get you the best price.
- Combine and save – Howden clients, for example, can combine their car and home insurance to save money!
Howden – here to help
In a world of chatbots, comparison sites and call centres, we still feel that the best way to understand what our clients need is by talking to a real human being. Whether that’s a call to our local branches, or a conversation in branch over a cup of tea, we’re there to make sure that you understand all the options available to you, and we can advise on the best cover options for your needs.
As Howden is a specialist insurance broker, we do the hard work for you. We get to know you and your insurance needs, and do the heavy lifting of searching for the right policy. So you can relax, knowing you’re covered by a policy that’s tailormade to you.
To learn more, solve any of your insurance queries or talk to one of our insurance experts, find your local branch here and give the team a call.
Sources: Which?, ABI, Parkers, Consumer Insight, Swinton.
This is a marketing blog by Howden.