The ABI has unveiled a series of steps the industry is taking to combat the rising costs of motor cover. In collaboration with its consumer advisory group, the ABI will commission research into the feasibility and impact of various social policies focused on helping low-income households manage their insurance costs.

It has also published a roadmap outlining 10 steps aimed at tackling insurance costs for all drivers. These steps are a combination of actions that industry, government or regulators could initiate or improve. These include making more data available for consumers to understand which vehicles are more expensive to insure, graduated drivers licensing to improve road safety, and the cutting of insurance premium tax.

The move comes ahead of the publication of the ABI’s wider financial inclusion strategy which aims to help consumers better understand and access insurance, protection and long-term savings products, which are key to households’ financial resilience.

Members of the ABI are also committing to better explain how insurance premiums are calculated and the steps customers can take to reduce costs. This includes more detailed explanations at renewal, but also throughout the purchasing process. The ABI has also expanded its online guidance for all insurers and consumers to use.

Price rises have been driven by claims cost inflation with EY estimating that in 2022 for every £1 paid in premiums, insurers incurred £1.11 in claims and expenses. They now estimate that this figure rose to £1.14 in 2023. The impact of price rises on consumers has been exacerbated by a fixed rate of insurance premium tax (12%). Introduced by the government in 1994 (at 2.5%), it has risen steeply since. The ABI says IPT currently adds £67 to the average motor policy.

Mervyn Skeet, director of general insurance policy, said: “We know that insurance costs are putting strain on household finances, so we’ve been working hard to find solutions. Some of these actions we can do quickly, others will require time or assistance from the regulator or UK governments.

“Regardless, we will continue to do what we can under our new strategy to help consumers access the products that are integral to financial wellbeing and play a key role in the nation’s financial resilience.”

Kathryn Moore, head of personal lines at actuarial consultancy OAC, welcomed the ABI’s plans but added: “The 10-step plan highlights actions which can be taken by the insurance industry, third-party partners, government and regulators to ease the burden on household incomes. While some initiatives are underway, others like graduated driving licenses, and changes to the level of insurance premium tax will require collaboration between all involved parties and will take time to come into effect. Their success will be dependent on government and third-party cooperation and the ABI has set out its commitment to supporting those required to drive these initiatives.”