The Treasury has issued an update on government efforts to address the cost of car insurance, following renewed calls from MPs for further action to bring down premiums.
Motor insurance prices rose sharply above inflation during 2022 and 2023, placing pressure on household budgets. The average comprehensive policy reached a record £635 a year in the first quarter of 2024. Since then, prices have eased, with average premiums falling to £551 in the third quarter of 2025, compared with £607 over the same period a year earlier.
Despite the decline, policymakers and consumer groups continue to raise concerns about affordability, particularly for drivers on lower incomes.
Evidence
Appearing before the Treasury Committee at Westminster, Sian Williams, chair of the Financial Inclusion Commission, urged the government to consider stronger measures to reduce premiums.
She said the government should require insurers to assess the costs and impact of a potential subsidy scheme aimed at lowering premiums and reducing exclusion, particularly among low-income drivers.
Response
In response to questions about future plans, a government spokesperson said ministers remain focused on tackling high motor insurance costs.
“This government is committed to tackling the high cost of motor insurance,” the spokesperson said. “That’s why we have set up a task force, and are taking action on its recommendations to deal with vehicle theft and repair costs, which it identified as key to lowering claim costs and reducing driver premiums.”
The Treasury confirmed that the task force had examined the idea of a subsidy scheme but concluded that direct intervention in the insurance market would be difficult to predict and could have unintended consequences.
As a result, the government said it has no plans to pursue this proposal.
Taskforce
The motor insurance task force published its final report in December 2025. In it, the group warned that interventions designed to lower premiums for one group of drivers could lead to higher costs or reduced access for others.
The report stated that limiting the use of certain risk factors or introducing cross-subsidisation models could distort market dynamics. It also argued that pricing risk accurately is essential to preventing moral hazard, where artificially low premiums encourage riskier behaviour.
The task force concluded that the UK motor insurance market remains strongly competitive and innovative, despite recent pressures.
Costs
While insurers have faced criticism over premium increases, the task force found that firms have also absorbed rising operating costs in recent years.
Research by the Financial Conduct Authority showed that the cost of providing replacement vehicles increased by nearly 50 percent between 2019 and 2023, rising from £473 million to £699 million. This increase accounted for around 10 percent of the overall growth in claims costs during that period.
Rising repair bills, parts shortages, and higher labour costs have also contributed to increased claims expenses.
Outlook
The Treasury says its current approach is focused on reducing underlying cost pressures rather than intervening directly in pricing. This includes action to tackle vehicle theft and measures to bring down repair costs.
While premiums have fallen from their 2024 peak, ministers acknowledge that affordability remains a concern. For now, the government has signalled that it will rely on market competition and cost reduction measures rather than subsidies to deliver further relief for drivers.
FAQs
Why did car insurance premiums rise recently?
Due to higher claims, repair, and replacement costs.
What was the peak average premium?
£635 in the first quarter of 2024.
Are premiums falling now?
Yes, they fell to £551 by Q3 2025.
Will the government subsidise car insurance?
No, it has no plans to introduce subsidies.
