Context
In a Guest blog by Emma Fuller, Partner, DAC Beachcroft, and Pete Allchorne, Partner, DAC Beachcroft, it says that Insurers have known for a long time that claims costs have been outpacing general inflation, and the recent FCA report on motor insurance claims analysis proves it. Between 2019 and 2023, whilst inflation rose 21%, claims costs increased 34% and the trend shows no sign of abating for several reasons.
Key points to note and next actions
- Vehicle costs and complexity Vehicles are becoming more expensive. From 2014 to 2024, the average purchase price of a car in the UK increased by 89%. Due to changes to vehicle technology, the trend towards increasing vehicle costs is picking up rather than slowing down.
- Battery electric vehicles (BEVs) are, currently, 20-40% more expensive than equivalent models powered by internal combustion engines (ICE). The average cost of an EV battery is currently £8,000 to £10,000. BEVs cost approximately 35% more to repair than ICE vehicles, partly due to the fact that EV batteries are replaced due to a general fear of risk of fire.
- The cost of newer ICE cars is also increasing because of the increased use of Advanced Driver-Assistance Systems (ADAS), and, as with BEV technology, ADAS increased repair costs. Parts for BEVs and ADAS are more difficult to obtain and often have to come from overseas, increasing repair times and storage costs.
- Increased vehicle value has also caused an increase in the cost of theft claims. Though the number of thefts is down, the increased value of individual claims means they account for 10% of the overall rise in total claims costs between 2019 and 2023.
- The ABI’s work with government and relevant stakeholders to improve road safety and improve the skills of new and novice drivers should have a positive impact on the volume and severity of claims.
- Labour shortages The UK has experienced a shortage of suitably trained and qualified repair technicians for several years. With the increase in BEVs and ADAS-equipped vehicles, which require new qualifications, the problem is likely to get worse. To address this, the ABI has been working closely with the government, Thatcham Research and the Institute of the Motor Industry to develop solutions to tackle this labour shortage and skills gap.
- Micromobility An increased use of micromobility (e.g. e-scooters and e-bikes) has resulted in uninsured riders causing approximately £50 million in bodily injury costs annually. At present, the MIB is the compensator for third-party injuries involving illegal use of private e-scooters. As long as these devices are classed as motor vehicles and are illegal on roads or other public places, the MIB is liable for all third-party claims.
- Injury Bodily injury claims experienced a 7% increase in value from 2019 to 2023. This is a noticeable difference from every other type of claims cost, which increased over 40% during the same timeframe. The number of injury claims dropped significantly over the period due to various reasons, including changes in driver behaviour, improvements to vehicle safety and reductions in urban speed limits.
- Though the number of injury claims has gone down, this is more than offset by the increases to the value of individual claims. Higher value injury claims are made more expensive by rising care costs, prosthetics and other medical aids. More lower value injury claims are also exiting the Small Claims Track, which has an upper value limit that has not been lifted to account for inflation in many years. So more lower-value claims are now incurring legal costs.
- Insurers should consider pressing this point when responding to the Ministry of Justice’s planned review of the whiplash reforms. The ABI continues to advocate strongly for legislative reforms around the personal injury discount rate and whiplash injuries, given the importance of fair and proportionate compensation.