Claims inflation impact on motor insurance premiums (including HGV Insurance)
It is an understatement to say that the last few years have been very challenging for the insurance industry – for insurers, insurance brokers and customers alike.
The knock on impact is unfortunately with the end-users – the policyholders – who have been impacted with higher premiums and longer waits for motor insurance claims. To continue the domino effect, longer waits for claims means even higher premiums, we will explain why later in this article.
Motor insurance underwriting has in recent years largely been unprofitable but the insurers have made money by investing insurance premiums in funds, stocks and shares. With this market more volatile because of world events, insurance underwriting has become under more pressure than ever before, with significant rate increases in an effort to return to profitability. EY consultants (Ernst & Young) predict another year of unprofitable underwriting across the industry in 2024.
Significant market forces have contributed to this. At the time of writing, UK inflation is 3.9% (but was a staggering 11.1% in October 2022) and interest rates remain at 5.25%.
Second hand car values and car repair costs have all been impacted heavily by the Russia-Ukraine war, Brexit and the deep lasting legacy of Covid has led to premium increases throughout 2023 and expected further increases throughout 2024.
Claims inflation – caused by supply chain issues – is running far higher than average inflation. This in turn is pushing up motor insurance premiums, including haulage insurance.
Supply chain issues
The UK relies heavily on global imports for new vehicles and replacement vehicle parts. Since the start of Covid in March 2020, the parts supply chain has been significantly impacted by Covid itself, the Russia-Ukraine conflict, Brexit and a slowing down of the world’s economy. According to the Association of British Insurers (ABI) a whopping 40% of vehicle repairs are affected by delays in obtaining the necessary parts.
This has resulted in:
- Extended repair times
- Policyholders using courtesy vehicles for longer
- Supply and demand of credit hire vehicles has led to 30% increase in hire costs
- Increase in vehicle thefts and stripped for parts
The cumulative impacts of the repair delays, increase in demand and costs of courtesy vehicles and the rise in vehicle thefts are all driving up the cost of insurance premiums – signifantly.
The HGV industry has not escaped these premium rises, far from it. Premiums for HGV insurance are always far higher than standard cars or small vans because of the value of the vehicles and the damage it could cause due to its weight and size. Think £400 for car insurance and £1800 for HGV Insurance per annum, so a 20% increase in premium for car insurance in this instance would be £80 for a car but a £360 annual increase for a haulier.
In a market where haulage margins are tight due to the economic climate and retailers feeling the impact of the cost of living crisis, increases in HGV insurance are as unwelcome as increases in fuel prices and erodes profit margins for hauliers.
Isis Insurance have an unrivalled panel of HGV insurers and will work hard to shop the market for both new and existing HGV companies to keep any premium rises to a minimum and use introductory discounts to secure lower rates.