Some drivers are forced to choose between buying food or car insurance, Citizens Advice warns MPs

Some households are being forced to choose between buying food or car insurance, charities are warning.

Motorists are grappling with huge increases in insurance costs, with the typical driver paying £543 to insure their car at the end of 2023 – up from £434 in 2022.

In response, MPs on the Treasury Select Committee have launched an inquiry into the cost of motor insurance.

Speaking to the committee, charity Citizens Advice said a growing number of drivers were unable to afford insurance – and were even being forced to pick between buying groceries or car cover.

Soaring: Car insurance costs have accelerated in recent years

Citizens Advice principal policy manager David Mendes da Costa said: ‘That’s the situation that people are coming to us with.

‘That’s why it is essential for us, and the FCA [Financial Conduct Authority], to be looking into whether we are seeing fair value in this market.’

Da Costa added the people hit hardest by the premium increases were those on lower incomes, who paid £250 more on average for car cover.

Last year more than half of Citizens Advice advisers reported seeing customers cancelling car insurance due to cost, up from 5 per cent in 2002.

‘For us the critical concern is affordability and people not being able to access these products’, Da Costa said.

Overall, the average driver now pays 70 per cent more to insure their car than they did 10 years ago – £627 now versus £370 in 2013.

Insurers have defended price hikes by saying their own costs have risen, including the cost of car repair and replacement vehicles, as well as rising thefts.

Car insurance premiums may even keep rising if these pressures carry on, Association of British Insurers director of regulation Charlotte Clark told MPs.

The committee is also probing higher payments made by customers who pay for car insurance monthly, not yearly.

Paying monthly normally means paying more, and today consumer group Which? found that some drivers are being hit with annual percentage rates (APR) of almost 40 per cent.

Which? asked 39 car insurers and 34 home insurers what APRs were being applied to monthly payments, and, where there was more than one rate, why.

For car insurers, the highest rate was 1st Central’s 39.11 per cent – it charges between 5 per cent and 39.11 per cent, giving each customer a personal interest rate after a credit risk assessment.

First Central told Which?: ‘We understand it is important to customers that we keep the price of insurance as low as possible – and benchmarking tells us that we are competitive for both annual premiums and for those that wish to pay monthly through a credit arrangement.’

The average rate across 27 providers that charge interest and disclosed their rate was 23.37 per cent.

Only two car insurers asked – NFU Mutual and Hiscox – said they do not charge interest on monthly repayments.

Ten car insurers refused to disclose their rates to Which? – AXA, Budget, Dial Direct, Esure, First Alternative, Geoffrey Insurance, Nutshell, Sheilas’ Wheels, Swiftcover and Zenith.

Which? director of policy and advocacy Rocio Concha said: ‘Motorists need car insurance to be on the road legally and the vast majority of mortgage lenders will insist on homeowners having cover – yet those who can’t afford to pay for their premiums all in one go are being penalised with eye-watering rates of interest.

‘The regulator has been clear – paying for insurance monthly is a tax on being poor and it’s shocking to see providers still trying to justify the practice.

‘Given many firms’ interest rates don’t seem to reflect the modest risk they’re taking on, customers paying monthly are being charged disproportionately more than those paying annually.’