What's Driving Increased Premiums? The Rising Cost of Motor Claims.
Covéa Insurance
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The Rising cost of Motor Claims
Motor insurance premiums in the UK have seen a significant rise in recent years, driven by a variety of factors such as the well documented cost-of-living crisis and supply chain disruptions. In our recent networking event, we focussed on other reasons as to why motor insurance premiums are affected by the increased cost of claims.
Rising Costs of Car Parts and Repairs
One of the main reasons for the increase in premiums has been the soaring cost of car parts combined with reduced availability of these parts. This situation has arisen from supply chain challenges, the introduction of advanced vehicle technologies, and inflation in the car manufacturing industry. Today's vehicles are more complex and packed with technology, from sensors to advanced driver assistance systems (ADAS). While these enhancements contribute to better safety, they come with higher repair costs.
For instance, Thatcham Research reports that headlamp units can now account for about 8% of a vehicle's total value when new, thanks to their integration with ADAS and other features. Repairing or replacing these sophisticated components can be significantly more costly than in the past.
Moreover, the costs associated with bumper replacements have also increased. What used to be a straightforward repair now requires advanced diagnostics and recalibration of ADAS technology. From 2021 to 2023, repair costs for damaged bumpers rose by 15.3%, illustrating this new complexity. Currently, the average cost of replacing a bumper is around £423, plus an additional £250 for ADAS recalibration.
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External Factors
Claims inflation has also been impacted by a shortage of skilled repair workers. These shortages have led to longer repair times and therefore longer hire car durations.
The increase in energy prices over the last few years is also impacting body shop’s that rely on high energy consumption during repairs. These rising costs inevitably get passed on to insurers and consumers alike.
“Why has my insurance premium gone up?”
Working in the Insurance industry, we get asked this question a lot. This is why it is so important to understand all the different factors that have impacted premiums so you can explain it to your customers or your mate in the pub!
Non-Executive Director - Business Advisor
2moInsurance companies should be thoroughly investigated. Each insurer, either directly or indirectly, contributes to the rising overall claims costs by acting in a manner similar to loss assessors, adding unnecessary expenses to claims. As each insurer engages in these practices, claims costs spiral, ultimately inflating premiums. Meanwhile, overall profitability is boosted through increased premiums, assessor fees, and potential kickbacks!