Popping the Bonnet: Exploring affordability issues in car insurance and the ethnicity penalty
Citizens Advice has witnessed the sharp end of the cost of living crisis, with a growing number of people coming to us for help with cost of living issues, driven by rising costs in essential markets. Increasingly, we are seeing people in negative budgets - who now account for around 50% of our debt clients. These are people who no matter what they do just cannot cover the costs of their essentials each month. This places people in impossible situations, often having to make choices about what essentials to go without, and priced out of essential markets.
Car insurance is one of the markets where we are seeing people priced out. Over the last two years, the rising cost of car insurance has only added to this acute situation.
In 2022, just 5% of surveyed Citizens Advice advisers said they had seen clients having to cancel their car insurance. But in 2023, this rose to more than half. This came at the same time as run-away costs in the car insurance market, with the average price of insurance across 2023 up by 25% on the previous year. Since then prices have continued to spiral upwards, with premiums from the first quarter of 2024 up by one third on the same period in 2023.
But these costs have also never fallen equally. Back in March 2022 we first published research showing the existence of an ‘ethnicity penalty’ in car insurance, which saw people of colour paying £250 more per year for car insurance than white people. This means there is a risk that high car insurance costs are placing even higher strain on people of colour, putting them at greater risk of being priced out of this essential market.
This report examines the impact that growing car insurance costs are having on the people who come to us for help. It also provides a timely update on the ethnicity penalty to understand the impact this is having on affordability.