The insurance industry is experiencing claims inflation across many lines of business, and the motor trade industry is no exception. Motor claims continue to increase, with an average claim now costing £5,349. Here we highlight the various catalysts contributing to increasing claims costs.
Wages: Short term injuries and the average salary in the UK has increased significantly over the past few years.
These factors represent a higher cost to insurers at point of settlement of a personal injury claim, whereby the claimant suffers a loss of earnings.
Care: Following an injury, the care a claimant will receive will account for the largest proportion of a personal injury claim.
Wages for personnel in the care sector rose approximately 11.5% in 2022 and are expected to rise by a further 15% in 2023. These increased costs are passed on to the insurer and will therefore affect the total cost of a personal injury claim, whereby a claimant requires either short or long-term care.
Accommodation: Following an injury, a claimant may require modified living, depending on the injuries they suffer.
In this event, the costed inflation within the construction sector will result in increased costs to insurers to fulfil their obligations to provide suitable modified accommodation to the claimant, subsequently inflating the total claim amount, in comparison to years past.
Other factors: Current National Health Service (NHS) backlogs are well reported, with more than 7 million people currently on waiting lists for treatment. These waiting lists result in claimants spending more time away from their employment, increasing the portion of the claim attributable to loss of earnings.
The Ogden discount rate is used within the insurance industry to calculate the amount of compensation awarded to an individual who suffers life changing injuries and is dictated and set by the Ministry of Justice. Compensation is paid in one lump sum with the view of claimants being able to invest in low-risk investments for long-term future financial gain.
At present however, investments are not keeping pace with inflation and the discount rate is due to be reviewed in 2024. Currently -0.25%, the rate could well be amended to -1.5% to help combat the current poor investment returns available to claimants. If the rate is amended to between -0.75% and -1.5%, this will lead to a huge increase in pay-outs for those who suffer life changing injuries, which will see millions of UK personal lines and commercial customers insurance premiums affected.
Supply chain disruption
A global shortage of microchips has led to delays in new cars being produced, causing second-hand car prices to rise, which is increasing the cost of claims, particularly in the event of vehicle write-offs.
The UK imports up to 80% of its automotive components from the European Union (EU), worth approximately £9.8 billion a year. A weakening pound will only push up the cost of the many imported components required by repair centres.
The diminishing availability of vehicle parts and paint has led to extended repair times. This has lengthened hire car duration periods, subsequently increasing total claim values. Allianz has recently reported that the average time from First Notification of Loss (FNOL) to returning a customer’s vehicle has increased by 11 days.
Advancing vehicle technology
As technology in vehicles becomes more sophisticated and complex, the cost of repair and replacement similarly increases in cost.
Advancement in vehicle technologies such as Advanced Driver Assistance Systems (ADAS) and hybrid/electric vehicles, are pushing up the price of parts and repairs, as they require specialist knowledge and training.
There can be up to 1,500 semiconductor chips in a typical modern vehicle, which can be used in anything from bumpers to wing mirrors. The global shortage of microchips is contributing to rising costs and delays in the repair process.
Since the UK’s departure from the EU, there is a well reported shortage of skilled workers in the UK, including that of Heavy Goods Vehicle (HGV) drivers. Temporary or agency drivers who are unfamiliar with particular routes or the vehicle they are required to operate, are often utilised to bridge this shortage of labour, which has resulted in a higher volume of motor incidents on the UK’s roads.
Insurers have also seen a significant amount of supply chain disruption, including a shortage of labour and materials post-Brexit. According to the Health & Safety Executive (HSE), there are approximately 200,000 employees in the motor trade industry, a number which has been in decline for the last few years. This has led to higher demand and resulted in longer claims lifecycles, which has ultimately driven up claims costs.
We’re here to help
The impacts of claims inflation on the motor trade industry, mean it’s never been more important to have the right help and support from an experienced insurance broker, who can deliver value for money, while helping to mitigate risk for your business and people. Please get in touch.
Steve Barber, Client Director