Editorial: Why car insurance premiums keep soaring

Car insurance is fast becoming one of the most expensive household bills, adding more financial pressure at a time of high inflation and surging interest rates. While high inflation and its impact on car insurance premiums are affecting most EU countries, many are asking whether the small size of the local market is another factor driving premium increases. has highlighted the concerns of many car owners who claim their car insurance premiums have soared up to 40 per cent in the last year.

Car rental companies fret that these increases could drive them out of business. The dynamics driving higher insurance premiums are intuitive. The last few years have seen high inflation caused by supply-side factors affecting practically all products and services.

The purchase of car parts has soared like most other products. Cost inflation is a factor but cannot account for the substantial increases. A lack of transparency in insurers’ risk model and increased claims following the pandemic are just as likely reasons.

The small size of the local market often creates competitive inefficiencies where a few local insurance providers can create a virtual cartel hidden from consumers’ eyes. Unfortunately, shopping around for the best quotes is not easy as no online platforms seem to exist to give drivers easy access to market-pricing information. Consumer organisations must be helped to provide online platforms where drivers can easily compare quotes.

In the insurance market, like some other markets, there is a lot of smoke and mirrors going on. Through COVID, insurers made substantial profits as many drivers used their cars less frequently because of movement restrictions. Now, people are back to their usual routines, and the number of accidents is increasing again.

In the last year, the economic climate has changed, and insurers are less inclined to absorb the increased cost of inflation. Still, the insurance industry argues that inflation is the main culprit of soaring premiums. Insurance Association of Malta director general Adrian Galea says inflation is hitting practically everyone and everything in many countries.

Inflation does not discriminate between staple foodstuffs or car-part prices, he said. Lack of discipline and enforcement of sensible traffic regulations is another reason for the increasing number of accidents on our congested roads. As long as the number of vehicles on our roads continues to increase with no indication from policymakers on whether and how they intend to reduce them, we will continue to see road accidents increase.

Inevitably, this will impact the risk premium that insurers will charge drivers. Strict enforcement of traffic regulations will lead to necessary behavioural changes that will hopefully lead to fewer accidents. Insurance companies must review their risk appetite and models to ensure that the premiums they charge impact car owners reasonably according to their risk profiles.

The driving record, age and driving experience, credit rating, distances travelled, vehicle safety features, and the make and model of a car must be judiciously weighted in the model that determines the premium calculation. Drivers can also help drive costs down by following specific guidelines, including defensively, and agreeing on deductibles with their insurance providers. Ultimately, the insurance industry regulator must continue closely monitoring the market to ensure customers get a fair deal from their providers.

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