New analysis shows low-income drivers pay up to 48% more for car insurance

New analysis conducted for Fair By Design by the University of Bristol, published on 21 July 2024, found that people living in the most deprived areas pay between 29 and 48 per cent extra for car insurance, equivalent to a £234 to £314 poverty premium compared with wealthier areas¹. The research looked at over 1,000 insurance quotes covering a range of different types of area¹.

The briefing, produced by the Personal Finance Research Centre at the University of Bristol, also examined how people pay. Paying monthly for car insurance rather than in one go can cost people on low incomes as much as 40 per cent extra, or £384¹. The analysis states that many low-income households are forced to pay monthly because they cannot afford the entire annual lump sum in one go¹.

On area characteristics, the research found that people living in more ethnically diverse areas pay around 20 per cent higher premiums, or £180, than those in less ethnically diverse areas, even when only quotes for areas broadly comparable on crime, collision and deprivation levels are compared¹. Fair By Design says this is in line with previous Citizens Advice research which found drivers were paying an "ethnicity penalty" of £250 over a year ago¹.

The analysis took into account factors that might affect how risky insurers deem an area, including car-related crime, the number of road traffic collisions and the age profile of the local population¹. Even after removing the impact of risk factors such as crime levels, traffic collisions and age, the same driver in the same car could still pay at least 15 to 20 per cent more, or £131 to £156, to get insured in a more deprived area¹. Fair By Design says a large portion of the premium remains unexplained beyond these risk factors¹.

Fair By Design defines the poverty premium as the extra costs people on low incomes pay for essential products and services such as insurance, credit and energy, and for how they pay for things¹. The briefing notes that different causes of the insurance poverty premium would need different solutions, with some attributable to market problems requiring a regulatory approach and others requiring social policy, such as cross-subsidising costs¹.

Why it matters for households

The figures describe quoted prices rather than what any individual pays, and they are averages across areas and quote types, so a household's own renewal may differ. What the analysis sets out is that location and payment method are associated with higher quoted premiums for drivers who have least control over either: where they can afford to live, and whether they can pay a year upfront¹. For a driver in the most deprived areas, the reported gap is £234 to £314 a year against wealthier areas, and paying monthly rather than annually is put at up to £384 extra¹. Fair By Design states that many people on low incomes need a car to get to work or visit family where public transport links are poor, and that car insurance is a legal requirement¹. The research concerns car insurance pricing; it does not cover other products. How premiums are built up, including the effect of Insurance Premium Tax, is set out in our guide to how insurance works.

What happens next

Fair By Design is calling on the Financial Conduct Authority to investigate the insurance market, saying an investigation would request data from insurers so the regulator could assess whether current pricing structures represent fair value for consumers, including those on low incomes, and how the market is driving up premiums for people on low incomes or with protected characteristics such as race¹. The briefing states that the Labour party pledged in its manifesto to "support drivers by tackling the soaring cost of car insurance", and that at a debate it pledged to call in the Competition and Markets Authority and urge the FCA to launch urgent investigations into the rising cost of car insurance, including whether postcode pricing practices unfairly target ethnic minorities and those on lower incomes¹. No date has been reported for any FCA investigation or government action.