Motorists have reported drastic increases in their car insurance premiums, with some seeing up to 40% increase in costs in just one year.

The rise in premiums differs between insurance companies and vehicles, depending on the type of car and the extent of insurance cover.

Several premiums have increased by seven to 15%, according to insurers, while others have increased by 25% across the board. The increases are a result of an increase in claims and spiralling costs of parts, but car and business owners say the increases are potentially crippling.

One car rental company said the premium increase for its fleet meant a rise of almost €100,000 in insurance costs.

“This is going to cripple us. It will wipe out my profits and make me question whether the business is still viable. I understand costs are increasing across the board but you cannot do this to a business,” an owner of a car rental company told Times of Malta.

He said the increase was imposed across the board and did not depend on any no-claims discounts. The car rental company said it was reluctant to shift the increase onto the consumer because there is a competitivity issue at stake.

“I cannot increase the price of the daily rental so easily. How can I compete with my rivals? Some are creating unlevel playing fields by offering super low rental fees that make us question whether it made business sense. This is a price-orientated market so we have to be careful,” he said.

The business owner said there were also several other increases he had to factor in, including labour costs as well as other costs such as the increase for a parking spot at the airport from €2.50 to €7.50 per slot.

Another car owner said his insurance premium increased by 40% over last year. As a pensioner, he said this increase would practically wipe out the increase the government is giving pensioners in the budget for 2024.

“The car is not something you can do without. Public transport is what it is. This increase will almost cancel out all the increases we’ve been hearing about for pensioners. And this is over and above the price of food which has also gone through the roof,” he said.

Insurers blame inflation

When contacted, Insurance Association of Malta director general Adrian Galea said the premium increases were the direct result of inflation and additional costs that insurance companies were facing.

“Inflation is hitting practically everyone and everything in many countries."

Galea said local motor insurers are certainly not immune to such inflationary forces, and in their case, these are perhaps accentuated because car parts need to be imported.

“This means transportation costs are higher, and we do not benefit from economies of scale as larger countries do,” he said.

“Inflation does not discriminate between staple foodstuffs or car part prices.

“While some categories are more susceptible to inflationary forces than others, throughout the past few years and especially since the Russian invasion of Ukraine, price stability was severely compromised, and price increases became the norm of the day,” he added.

Galea specified that the association does not receive reports on such decisions, as each insurer decides on premiums based on risk appetite and claims experience.

Inflation does not discriminate between staple foodstuffs or car part prices

The association’s role is to act as a voice for the industry and therefore it must point out that unless certain issues are tackled, they will have an impact on claims cost and ultimately on premiums.

“This is why we have always been publicly very active in raising awareness on the importance of enforcement to ensure better road safety, as an example, as this contributes primarily to fewer deaths and injuries, and additionally to lower claims costs,” he said. 

Galea said insurance is based on the rather simple concept that the premiums collected from the many policyholders go towards paying the claims made by the few.

If that cost base rises, either through the number of claims made and/or through the rise in the cost of claims, then insurers would end up having to revise the premiums charged.

He said that in the UK, for example, the average vehicle insurance in the UK rose by 29% just in the third quarter of 2023.

Times of Malta reported last month that insurers had seen drastic increases in the cost of vehicle repairs, with some car parts increasing by 350% in price over last year.

As the expense of repairs sometimes surpasses the vehicle’s current market value, motor insurers were often finding it more cost-effective to write off vehicles rather than fix them.