Rising Motor Costs

Repairing vehicle damage is a key driver for this and has had a 'domino effect' on other aspects.

Claims inflation – rising costs within motor

Since Covid19 and Brexit, we’ve seen significant market changes occur, in particular; the rising cost of motor claims. Repairing vehicle damage is a key driver for this and this has had a ‘domino effect’ on other aspects of claim costs.

The headlines in consumer press have been telling woes about rising costs of living, and this is reflected across all areas of business too, with the motor market also being affected.

Market intelligence suggests that repair cost inflation had risen 8.4% in 2020 and 8.2% in H1 2021.  From the beginning of 2020 and end of 2021 is estimated to have inflated by 12% with no signs of slowing down.

Challenges for Insurers – what we are doing to mitigate the costs

• Cultivate strong supply relationships with repairers and mobility providers – we work closely with our supply chain to ensure strong relationships and sufficient capacity and skills to meet demands, including provision of replacement / courtesy cars. We are not immune to inflation but we can try and manage the demand as best as we can.
• Utilising green parts (reclaimed quality assured parts) where possible, can help put cars back on the road sooner as well as being better for the environment and a lower cost option.
• Robust screening and control of claims to defend opponent behaviours to artificially inflate costs even higher – examples of some clamant firms moving roadworthy cars into garages to await repair so inflating replacement hire costs.

Whiplash Reforms – these should have positive effect on Claims costs

The reforms have taken a bit of a back seat from headlines lately, compared to motor parts costs, but on 31^st May 2021, whiplash reforms came into force which affected all injury claims emanating from accidents on or after that date.

In a nutshell, it introduced a tariff based settlement amount for whiplash defined injuries based on a prognosis for recovery (time of recovery). The value of compensation paid for these claims has been set at values lower than that previously recoverable.

Unfortunately, ‘non-whiplash’ defined injuries (so for example a bruised knee or wrist) are not captured within the reforms and there is clear evidence that we are seeing a change in the types of injury now occurring. The value of these ‘non-whiplash’ defined injuries is also unclear when claimed in conjunction with a whiplash injury, with a Court of Appeal test case likely to be required to provide the industry with much needed clarity. From a cost perspective, the way things are currently set up has the potential to significantly undermine the expected benefits from the Whiplash Reform programme. 

At the same time, the Small Claim Track limit for Personal Injury claims was increased from £1000 to £5000 within the motor space, all but eliminating any legal cost recovery for the majority of low value motor injury claims. This will have a corresponding positive effect on insurer costs and should be borne out.

The government and FCA require insurers to provide information to demonstrate that any benefits realised from the Reform programme is passed on to insurers. Regulatory reporting is expected from November 2023.

So far, industry experience suggests that there has been a 20-30% reduction in injury claims compared to the pre-reform level. At the moment it’s too early to tell whether this will develop unfavourably or if these reductions will remain. In the past, our experience would suggest that the claimant market will adapt over time which could mean the frequency reduction may dissipate as we continue to move forward, but we’ll wait and see what happens.

All these influences are set to make for a challenging year for motor insurers, this coupled with pricing reforms on personal line products, means that personal motor insurance will become a more competitive market than ever before. You can be assured that at Covéa Insurance we will continue to deliver fair pricing proposals to risk presentations across all our motor products including private motor, motor fleet and motor trade; and ensure that we do what we can to control claims inflation. 

We hope this information is of interest and will additionally help you in conversations with your motor customers.