What’s driving up motor claims inflation?

As the cost of motor claims continues to increase, the average claim now costs £5,3491. But what factors drive up motor claims inflation, and how might they affect you? Here, we take an overview of the industry and provide some answers.

Global supply chain issues
Primarily, motor claims inflation is being driven by problems in global supply chains.

Previously, around 50% of the world’s neon, used in the production of semiconductor chips2, was supplied by Ukraine, as were wire harnesses, nickel and palladium, used in electric batteries and catalytic converters. War with Russia is now severely affecting many automotive manufacturers' supply of automotive parts. Ongoing Covid lockdowns in China are causing delays and closures in manufacturing and logistics centres, further impacting supply chains. The weakening pound is affecting UK imports, a significant factor given that the UK imports 80% of its automotive components from the European Union3.

With a general shortage of automotive parts and components, settling a claim is extended, meaning vehicles remain longer at the repairers. The rising cost of courtesy vehicles is also increasing the cost of the claim, which is being reflected in customers’ premiums.

Fewer new car registrations
The ongoing global shortage of semiconductor chips, along with the economic climate and hybrid working patterns, has led to a decline in the new car market, with approximately 2 million fewer new car registrations recorded. This has resulted in the value of second-hand vehicles increasing, some more than their initial purchase price and the average price of a used car increasing by £3,300 in two years, according to AutoTrader, leading to an increase in total claim settlement costs.

The expense of advanced technology
An increasing number of cars are fitted with Advanced Driving Assistance Systems (ADAS), including touchscreen and other onboard systems, which rely on semiconductor chips. As well as a shortage of chips - the average price increasing by 95%6 this is driving up the repair and replacement cost.

Skills and staff shortages
There needs to be more skills in the UK automotive industry, particularly in specialist labour for advanced vehicle technology and electric vehicles, driving wage inflation and reducing workshop capacity. As a result, claims inflation is increasing, with longer lead times for repair and, ultimately, claims settlement.

Energy prices
Soaring energy prices impact every stage of a vehicle’s life, from manufacturing and running costs to maintaining and repairing the vehicle. As wholesale gas and energy prices rise, repair centres and manufacturers are impacted, with nine out of ten reporting having to pass on costs to customers, further increasing inflation.

Increased theft
Levels of theft have increased during the cost of living crisis, with vehicles being stolen to order and components sold. Keyless car theft is at an all-time high and theft of catalytic converters has risen by 104%4, while the most frequently stolen cars are Range Rovers and Fiestas. In 2021, vehicle theft cost the insurance industry an estimated £1.44bn5.


 

Talk to NLIG
As you can see, pressures right across the board are contributing to longer repair times, more expensive repairs, more costly claims settlement and overall claims inflation. While we can’t control any of these factors, we’ve pledged to work to the highest professional standards, fully support our customers and work closely with insurers.
 
We recommend using insurers with an Approved Repair Network, to help speed up repairs, and be able to assess damage remotely, to speed up liability repairs and ultimately the claim. Throughout your claim, we’ll liaise with your insurer, advising of any delays and keeping you updated to help minimise any disruption.
 
To download a leaflet explaining the factors driving up motor claims inflation, please click here. To discuss any aspect of your vehicle insurance requirements, call NLIG today on 01992 703300, or email us: insurance@nlig.co.uk


 

1 UK motor claims inflation on the rise with added pressure from delayed injury settlements - WTW (wtwco.com)
2 Reuters. Russia’s attack on Ukraine halts half of world’s neon output for chips. 11 March 2022.
3 European Automobile Manufacturers Association (ACEA). EU-UK Automobile Trade : Facts and Figures March 2020.
4 Which. Catalytic converter theft is up by more than 100%. June 2021.
5 Insurance Times. Insurers approximately í1.44bn out of pocket due to vehicle thefts – CMA. 7 July 2022.
6 SMMT. Long-term solutions needed to tackle surging costs. September 2022.