The Government Motor Insurance Taskforce has found that average insurance premiums fell to £551 in 2025, down from a peak of around £650 between 2023 and 2024.
Despite this, claims costs remained high, with a record £3.1bn paid out in Q1 2025.
The taskforce found that high claims costs were placing upward pressure on premiums, but the high level of competition in the UK motor insurance sector kept prices down.
Claims costs increased due to the higher repair costs of more modern and sophisticated vehicles, along with supply chain pressures and higher used car prices.
Cormac Bradley, senior actuarial director at Broadstone, said: “There is no magic bullet when it comes to motor insurance premiums.
“The Taskforce’s final report rightly recognises that a multitude of factors, ranging from external cost pressures to the way claims are managed, drive the cost of cover and all must be tackled if we are to deliver lasting benefits for motorists.
“The industry is not blameless, particularly in the handling of non-fault claims, where the practices of some in passing customers to claims management companies for referral fees can add unnecessary cost to the system.
“More should be done to ensure incentives align with efficient claims management and fair outcomes for consumers.
“The taskforce has done a credible job in setting out practical reforms, but some measures will take time to bear fruit.
“Fundamentally, we also need to get better at designing and building more resilient vehicles, and at developing the skills and capacity to repair them when accidents happen.
“The insurance industry must be ready to play its part in this collaborative effort.”
The taskforce also recognised the role of regulation in keeping premiums down, such as the intervention performed by the Financial Conduct Authority (FCA) to tackle ‘price walking’, where insurers increase premiums for loyal customers.
It acknowledged calls from motor insurers to reduce Insurance Premium Tax (IPT), a tax levied on all insurance products, which generated £8bn in the last fiscal year.
Jake Attfield, head of strategy at Fair4All Finance, said: “Reforms to motor insurance must ensure that support reaches the people who need it most.
“Today, around 2.6 million people are effectively priced out of driving because they can’t afford insurance.
“Improving access to affordable motor insurance could boost the UK economy by an extra £369 million each year.
“Ensuring that everyone can access fairly priced insurance isn’t just good for drivers – it’s critical for growth and social mobility.
“Beyond what is included in the final report, we hope to see collaboration and innovation to make insurance fairer and more affordable for low-income and financially vulnerable consumers.
“This needs leadership across industry, regulators and a renewed focus on this issue in Parliament.”
