The cost of car insurance premiums is expected to come down in 2025 by an average of £50, providing some relief to drivers who’ve been forced to fork out for record-high premiums over the last few years.
The potential price drop is the result of a change in how personal injury compensation payouts are calculated. If someone is injured in a crash that you’re deemed at fault for, they’re entitled to compensation. If your car insurance policy includes personal injury cover, your insurer pays that compensation. The personal injury discount rate (PIDR) is used to calculate the size of the payout.
PIDR is generally used when the claimant has received life-changing injuries. In essence, it’s used to determine the amount of money that could be made over time by investing the payout. A PIDR of -0.25% has been in force, costing defendants extra money. But, from 11 January 2025, the rate will increase to 0.5%, reduce the cost of PIDR to insurers and therefore car owners. The PIDR increase comes off the back of improving investment markets; the rate is set by the Government and reviewed every five years.
Effects the change may have
Analysis by Price Waterhouse Cooper suggests that the change could see car insurance premiums drop by an average of £50. While any reduction in motoring costs is welcome, for many it’ll be a drop in the ocean.
In April 2024, Parkers exclusively revealed data from car insurance broker Mustard showing that average premiums totalled a whopping £1,361 for the year. That compares to the £919 average in 2022 – an increase of over 40%, way above the rate of inflation.
Research from Consumer Intelligence backed up the numbers, showing a rise of 14.6% over the 2023 average. The changes to PIDR may spark a reversal in that trend, or at least slow down the rate of increase.
There are several contributing factors behind rocketing premiums, inflation being particularly crucial. Claims can take many months to settle, during which time the cost of repairs could have gone as inflation rose. Inflation has now stabilised and is nearly back down to the Bank of England’s target of 2% per year. However, that just means the rate at which prices increase has slowed, not that prices are going down.
New cars are also becoming more sophisticated in their technology and materials, which bumps of the cost of replacement parts. That tech can include a lot of sensors that are particularly vulnerable to damage even in a fairly low speed impact. And, once they’ve been replaced, those sensors need to be calibrated which is a time-consuming process that needs specialist equipment. All of which means the cost of repairing quite minor damage can be terrifyingly high, and that adds significantly to everyone’s insurance premium.
Lord Chacellor Shabana Mahmood said of PIDR change: ‘I have paid careful regard to the need to avoid significant under-compensation for claimants, while simultaneously aiming to minimise excessive over-compensation.
‘It is very important to recognise that the personal injury discount rate will always be a relatively blunt instrument, since no one choice of rate can ever ensure that all claimants receive exactly their full compensation.’
Which age groups are most affected by high car insurance premiums?
Driver’s under 25 years of age incur the highest car insurance premiums in the UK. According to Mustard’s data, that age group faced lower than average rises of 11% for 2024, however the average premium still cost £1,719.
Surprisingly, over 50s saw a much bigger increase in their premiums, which rose by 16.5% to an average of £434. That’s still the lowest cost of any age group, so experience clearly still counts for something.
Fear not, though. There are plenty of things you can do to reduce your premium, particularly for younger drivers. Below, you’ll find all of Parkers’ latest advice.
Parkers tips for reducing your insurance premium in 2025
- Consider a telematics or black box policy
Having a telematics system – or black box – installed in your car helps your insurer monitor your driving. Performing to their standards earns a discount. It’s a great option for first-time drivers, but it could also be helpful for more experienced drivers who nevertheless fall into the under-25 category that concerns insurers so much.
- Avoid paying monthly
It’s tempting to spread the cost of insurance with monthly payments however, since you’re essentially taking out a loan from the insurer, there’s a monthly interest charge to pay as well. Over the course of a year, that could add up the hundreds of pounds extra on your premium.
If you can’t afford to pay in a lump sum out of your current account, it may work out cheaper to put the cost of your car insurance on a credit card or use another form of finance.
- Make sure your details are correct
It’s amazing the effect your personal circumstances can have on a car insurance premium, so it pays to check that your details are accurate. For instance, you may be paying for more mileage than you actually use, or for business travel you don’t do. Remove named drivers who don’t use the car, as well. You may also be paying for extras that you can live without such as breakdown assistance, European cover, and like-for-like courtesy cars.
Your job can have a huge impact, too. People who work in media are notoriously penalised because insurers assume that, at some point, someone famous will be in their car. There are many other job categories that are deemed high risk; if you’re in one of them, see if you can fudge your job into a lower risk group.
- Shop around for renewal quotes in advance
Never assume that your current insurer is offering you the best possible price – they almost certainly aren’t. You can save an awful lot of money by shopping around on comparison sites, but bear in mind that not all insurers are on them. Give yourself plenty of time to consider all your options, as well. Not least because insurers do change their prices and you may miss a deal if you leave it too long.
- Negotiate with your current insurer
Treat your current insurer’s renewal quote as an opening gambit – they can almost certainly do better. Get some quotes from other companies and see if they can be matched. Some insurers can also apply loyalty discounts but only if you call them.
- Upgrade your security
Some car insurance companies offer discounts if you have cameras, gates or other security measures for your driveway. Likewise upgrading your garage locks – your insurer may demand a minimum standard anyway, so make sure all locks meet them. Installing a tracker in your car also helps, as does fitting a dashcam.
- Choose the right car
It goes without saying that what sort of car you have has by far the biggest bearing on the cost of your insurance. In the UK, cars are categories into insurance groups numbered 1 to 50 – the higher the group, the higher the premium.
Cars in group 20 or under tend to be relatively cheap to insure. Most are small hatchbacks, but there are plenty of family cars in that bracket, as well. Conversely, there are a lot of fairly prosaic family cars that are in much more expensive groups.
Sporty and luxury models can attract considerably higher premiums, as do cars that have previously been written-off. The age of your car doesn’t directly impact the price of insurance, but there is nuance to consider. Older cars generally cost less to repair, but newer cars have safety features insurers favour because they help prevent a crash happening in the first place. Insurance premiums are calculated accordingly.
- Have a lower mileage limit
The fewer miles you do, the less likely you are to have a crash, therefore your car insurance premium will be lower. It’s important that your estimate is as accurate as possible – check your car’s MOT history if you’re not sure. Many people overestimate their annual mileage when sorting their insurance and end up paying more than they need to.
Underestimating can invalidate your policy. If you make a claim, your insurer will check the car’s MOT history – which can be done online – to see if you’ve been doing more mileage than you declared.
What this means for you
The change in personal injury discount rates may mean you see a reduction in your car insurance costs. However, since the average reduction is expected to be just £50, any you see could be quite small. It entirely depends on how the change affects your specific insurer. In the meantime, following the advice given here could result in a much bigger reduction.
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