Why Is Insurance So Expensive?

If you’ve noticed your insurance premiums going up recently, you’re not alone. Across the UK, people are facing rising costs for car, home, health, and business insurance. But what’s driving these increases, and is there anything you can do about it?

This guide explains why insurance has become more expensive, what’s influencing these rising costs, and how to manage your premiums more effectively.

Why Have Insurance Premiums Gone Up So Much?

There isn’t one single reason for rising insurance costs. A combination of global, economic, and industry-specific pressures has made insurance more expensive across most sectors. Here are the main factors:

Higher cost of claims

One of the biggest reasons premiums have increased is that insurers are paying out more when people make claims. This applies to both the number of claims and the average cost of each one.

In car insurance, the cost of vehicle repairs has soared due to more expensive parts, longer wait times for components, and rising labour rates. More advanced technology in cars also means that even minor bumps can cost thousands to fix.

In home insurance, inflation and supply chain issues have made materials and tradespeople more expensive. That means the cost to rebuild or repair a property after a flood or fire is significantly higher than it was a few years ago.

Health and pet insurance have also gone up due to increased treatment costs and demand for services.

Rising inflation and economic uncertainty

General inflation has pushed up the price of almost everything, and the insurance industry is no exception. Higher costs for suppliers, services and energy bills all feed into what insurers must pay out when you claim.

If a repair costs more or takes longer, insurers pass that extra cost back to policyholders in the form of higher premiums. Inflation also affects reinsurance – the insurance that insurers themselves buy to protect against major losses. If reinsurance becomes more expensive, this too is reflected in consumer premiums.

Extreme weather events and climate change

In the property insurance sector, weather-related claims have increased. Flooding, storms, and subsidence have become more common and severe in the UK. These events lead to high-cost claims and uncertainty about future risks, both of which drive up premiums.

Some insurers now consider location-based climate risk as part of pricing, meaning homes in flood-prone areas may face significantly higher premiums or fewer cover options.

Increased fraud and claims frequency

The industry has seen a rise in fraudulent or exaggerated claims. Whether it’s crash-for-cash scams in motor insurance or inflated home repair costs, insurers are losing more to fraud, which contributes to premium rises across the board.

At the same time, more people are making legitimate claims. Post-pandemic, travel insurance and health insurance claims, for example, have returned to normal levels, increasing the pressure on insurers.

Regulatory changes and pricing reforms

In January 2022, new Financial Conduct Authority (FCA) rules banned the practice of price walking. This meant insurers could no longer offer cheaper premiums to new customers while charging loyal customers more at renewal.

While this has created more fairness across the board, it also resulted in higher upfront prices for everyone, particularly new customers who previously benefited from lower rates.

Insurance Premium Tax (IPT)

Insurance in the UK is subject to Insurance Premium Tax, currently charged at 12 percent on most policies and 20 percent on some, such as travel insurance. IPT is applied on top of your premium, which adds to the total cost you pay.

Unlike VAT, IPT isn’t something you can reclaim or avoid, and any future increases in the rate would further raise prices.

Can You Reduce the Cost of Insurance?

While some price rises are out of your control, there are ways to keep costs in check:

• Shop around at renewal time. Insurers still price differently, so switching can save you money.

• Increase your voluntary excess if you can afford to. A higher excess usually leads to a lower premium.

• Build your no-claims history. Especially in car insurance, this can lead to meaningful discounts.

• Pay annually rather than monthly to avoid interest or admin fees.

• Only buy the cover you need. Add-ons can increase your premium unnecessarily.

If you're struggling with affordability, it may be worth speaking to your insurer directly to see if they can offer a more flexible arrangement or different cover options.

Final Thoughts

Insurance has become more expensive in the UK due to a combination of rising claim costs, inflation, extreme weather, and regulatory change. While the price increases can be frustrating, understanding what’s driving them can help you make more informed decisions.

Taking time to compare policies, manage your risk profile, and adjust your cover where appropriate can help keep your premiums manageable without sacrificing essential protection.