The Impacts Of Claims Inflation On Motor Insurance

The motor insurance industry is currently facing a challenging period, impacting policyholders through a surge in premiums. This environment is shaped by a combination of factors, creating a scenario where claims inflation is at a record high. 

 

Supply Chain Challenges 

 

Global events such as the Russia-Ukraine war, Brexit, and the enduring effects of Covid-19 have significantly disrupted the supply chains for the UK's motor industry. According to the Association of British Insurers, a substantial 40% of vehicle repairs experience delays in obtaining the parts they need. 

 

The consequences are widespread, resulting in prolonged repair times, shortages of courtesy vehicles, increased costs for hire vehicles, and a rise in vehicle thefts for parts. Ultimately, these disruptions contribute to higher insurance premiums for policyholders. 

 

Technological Advancements 

 

The adoption of Electric Vehicles (EVs) and the integration of Advanced Driving Assistance Technology (ADAS) add complexity to vehicle repairs. Repairing technologically advanced vehicles is more expensive, and the shortage of semiconductors, intensified by disruptions in Ukraine, affects both new and second-hand vehicle supplies, leading to larger prices and total loss values. 

 

As vehicles become more sophisticated, the shortage of skilled labour in the repair sector compounds the challenges. The necessity for specialised expertise in handling electric vehicles further extends claims settlement times and increases repair costs. 

 

Labour Shortages in the Repair Sector 

 

A significant shortage of skilled labour in the motor repair industry, influenced by factors such as reduced EU immigration post-Brexit, an ageing workforce, and the demands of repairing electric vehicles, results in prolonged claims settlement times and increased repair costs. 

 

Injury & Rehabilitation Costs 

 

General and wage inflation, coupled with extraordinary inflation in the care sector, significantly impact future losses in large claims. The shortage of care workers amplifies these challenges, contributing to a 25% increase in the cost of care for large claims. 

 

Energy and Fuel Price Rises 

 

Rising energy prices, influenced by the Russia-Ukraine war, affect manufacturing, repairs, maintenance, and day-to-day operations in the motor sector. These increased costs are directly passed on to customers through elevated repair costs. 

 

Vehicle Theft and Insurance Fraud 

 

A surge in car thefts, particularly keyless thefts, and a rise in application fraud contribute to increased insurance premiums. The shortage of parts and materials due to thefts adds to the overall cost of insurance, and policyholders may encounter difficulties in obtaining insurance in the future. 

 

Personal Injury Discount Rate (PIDR) 

 

The uncertainty surrounding the Personal Injury Discount Rate adds another layer of complexity. The rate, set by the Lord Chancellor, influences compensation payments for personal injury claims, and the scheduled 2024 review creates uncertainty about its potential impact on large personal injury claims. 

 

How Can We help? 

 

While many factors are outside of our control and yours as a policyholder, pro-active claims management is vital when it comes to contolling and mitigating costs as is prompt claims reporting. 

 

Depending on the source, Insurer data suggests that the cost of claims reported within the first 12 hours of a loss can be on average a significant 77% lower than those reported a week after the event. After 24 hours of the loss this figure reduces further to 55%. 

 

Centricity’s QR Code initiative rolled out two years ago has been a huge success enabling our clients’ drivers to report incidents in real time at the scene of an accident providing it is safe to do so; allowing us to assess and manage potential claims as soon as they occur. We cannot prevent accidents but we are ahead of the game when it comes to claims management! 

 

The motor insurance industry is navigating a challenging terrain marked by global disruptions, technological advancements, labour shortages, and inflationary pressures. Now more then ever is the time to choose a broker who is geared up to really protect your business and ongoing costs through these unchartered times.