Why claims inflation matters to you

If you’ve glanced at your car insurance renewal lately and thought, ‘Wait, how much?’ – you’re not alone. For drivers across the UK, prices have been heading one way for years: up. Okay, for some drivers, there has been a noticeable drop in insurance premiums recently, but in historical terms, they remain stubbornly high – especially for vans and commercial vehicles. So what’s going on? Why haven’t prices eased off much? And is there any light at the end of the tunnel? Let’s dig into what’s really fuelling this rise and what it means for your insurance.

Here’s the headline stat: in 2023, UK motor insurers were paying out £1.12 in claims for every £1 they took in. That’s not sustainable – for them or for us (ERS Report, 2024).

Things improved a bit in 2024, especially for everyday cars, but commercial vehicles are lagging. Why? Their risks are more complex, and the costs haven’t dropped. At the heart of all this: claims inflation. It’s a bit of an industry buzzword, but it basically means everything from delayed repairs to pricier injury payouts is pushing costs up.

Electric Vehicles: A Mixed Bag
EVs might be good for the environment, but fixing them? Not so simple. They take 14% longer to repair and cost about 25% more than petrol or diesel cars (Thatcham Research). Throw in a shortage of trained EV technicians and extra safety steps (like powering down high-voltage batteries), and it’s easy to see why the bills are mounting.

Labour and Regulation
In 2024, repair labour costs jumped 14%, driven by wage hikes, tax changes, and a tight job market. All of that feeds directly into your premiums.

Parts and Global Disruption
The Red Sea crisis meant cargo ships had to take the long way around, pushing container shipping costs up by 300% in early 2024. This translated into an 8% rise in parts prices. Things stabilised for a while, but the system remains fragile.

Tech-Heavy Repairs
Advanced Driver Assistance Systems (ADAS) like adaptive cruise control and lane-keeping tech are now standard in many new cars. Great for safety – but expensive to fix (Thatcham Research).

Thanks to a pandemic-era shortfall of three million new cars, used vehicles are in hot demand, particularly those 3–5 years old. Prices dipped slightly in 2024, but demand remains strong, especially for cars five years and older.

Insurers are also required to offer the highest comparable market value when a car is written off, per Financial Ombudsman guidance – pushing claim costs even higher.

Updates to legal guidelines mean personal injury settlements are up 23% (non-whiplash) and 15% (whiplash) (MoJ). These changes apply to new and existing claims alike.

A new whiplash tariff kicks in from 31 May 2025. More claims are expected to exceed the £5,000 small claims limit – opening the door to added legal fees.

And for serious injuries, care costs are rising fast. Official figures say 6%, but private estimates suggest as much as 12% due to wage pressures and labour shortages.

Need a rental car while yours is in the shop? That’s called credit hire, and it now costs five times more than it did in 2014 (ERS Report). While prices dipped briefly due to oversupply, they’re expected to climb again.

Fraudulent claims cost the industry £1.1 billion in 2023, and motor insurance made up nearly half of that (ABI). Exaggerated injuries, staged crashes, and application fraud are all contributing.

More generous payouts may inadvertently encourage some bad behaviour – with honest drivers footing the bill.

While 2024 brought some relief, 2025 looks uncertain. Claims inflation is still expected to run at 6–8% (ERS Report).

The Bank of England forecasts that CPI will remain above its 2% target until 2027, and ongoing global tensions – particularly around U.S. tariffs – could trigger more cost volatility.

The government has launched a taskforce to review the cost of motor insurance, with a report due in Q3 2025.

You can’t control global politics or labour markets, but here are some smart moves that might help you save:

• Report claims quickly – this can speed up the process and lower costs.
• Use approved repairers – quicker and often cheaper.
• Install a dash cam – helps resolve disputes and deters fraud.
• Take photos after any incident – damage, people, vehicles, the lot.

Looking Ahead

Car insurance is caught in a perfect storm: new tech, economic uncertainty, legal reform, and rising expectations. But the more you understand what’s driving the cost, the better your chances of finding savings – or at least making peace with your premium.