| Link(s): | Premium hikes driven by claims costs, but insurers told to improve claims handling | FCA Motor insurance claims analysis | FCA Motor Insurance Claims Analysis – multi-firm review |
Context
In publishing an analysis of motor insurance claims, to support the work of the Government’s Motor Insurance Taskforce, the FCA has revealed that while rising motor insurance premiums are largely driven by external cost pressures, shortcomings persist in how some insurers handle claims counters what appears to have been the view of industry press commentators that rising motor insurance premiums have been driven by insurer greed. The Analysis document sets out various breakdowns (graphs and data) of costs relating to motor insurance claims between 2019 and 2023.
Key points to note and next actions
- The FCA has found that the rise in motor premiums between 2022 and 2024 was largely due to claims costs (rather than firm profit) which have risen largely due to factors insurers cannot control.
- In the sample of twelve insurers, the FCA found that claims costs increased by £2.3bn (34%) from 2019 to 2023. While costs have increased overall, the frequency of claims has dropped.
- Claims costs associated with accidental vehicle and property damage accounted for 65% or almost £1.5bn of this increase. Rising costs for vehicles and repairs are driving these increases, caused in part by electric and hybrid vehicles being more expensive to repair, and shortages in repair labour.
- Replacement vehicle costs accounted for 10% of the total increase in claims costs during this period, which rose from £226m in 2019 to £699m in 2023.
- Rising vehicle costs accounted for 10% of the total increase in claims costs, as vehicle theft became more frequent and its costs increased from £235m in 2019 to £533m in 2023.
- Bodily injury costs accounted for 8% or £182m of the total increase in claims costs.
- Long-term care costs, exaggerated or fraudulent injuries, and increased use of micromobility (such as e-bikes and e-scooters) are partially driving this increase.
- The greater prevalence of uninsured driving, which is also in part due to the use of micromobility, has driven further costs, increasing by £200m across the market as a whole.
- Those insurers who receive referral fees to engage third parties in the claims processes may drive increased claims costs and poorer customer outcomes due to challenges in overseeing outsourced claims handling.
- The cost of hire vehicles has risen significantly.
- Most of the twelve firms in the sample made underwriting losses in 2022 and 2023.
- With regard to next steps, the significant majority of the FCA’s recommendations set out in its retail insurance roadmap web page are for the Government Motor Insurance Taskforce, with three for the ABI and just one for firms generally (to develop good outsourcing practices to help reduce claim durations and costs).