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Motor claims inflation in the UK surges by over 8% in 2018

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  • Topics:
    • Claims & Losses
    • InsurTech
    • Motor (Commercial)
    • Topical Trends

Rises in 2019 to add further pressure on premiums...

  • North West England maintains its position as the region with the highest average cost per claim (ACPC), at £5,403 in 20181.
  • The South West - helped by being the region with the lowest average claimants per claim – records the lowest ACPC in 2018 at £1,315 below the North West.
  • The sharpest rise in claims inflation took place in Wales and the North East at 22.4% between 2016 and 2018.

Motor claims payout inflation in the UK rose by 8.6% in 2018, taking the average cost per claim (ACPC) to £4,791, according to the latest Claim Metrics benchmarking analysis from Willis Towers Watson. This latest annual rise in claims inflation represents the fourth consecutive increase in the ACPC, which has now risen by £760 since 2016.

Gross Accidental Damage (AD) and Third-Party Property Damage (TPD) are increasing at the fastest rate, with AD claims inflation rising by 13.6% in 2018, followed by TPD claims inflation at 11.1%, according to data from Claim Metrics, which provides deep analysis of claims activity in the personal lines insurance market, benchmarking over £9.5bn of motor claims spend and is supported by major players in the  UK motor market.

Tom Helm, Head of Claims Consulting at Willis Towers Watson, commented: “The cost of settling claims continues to climb, despite accident volumes being fairly stable. A combination of factors are driving this trend, including rising vehicle repair costs as cars become ever more high-tech, increasing repair complexity, a spike in theft claims and ongoing fraud which, together with market dynamics, are influencing gross damage and associated costs.

“The 8.6% inflation on attritional claims is compounding pressure on motor insurance premiums, particularly given wider market issues such as the unexpected outcome on the Ogden discount rate change announced in July.”

There is also wide variance in the rate of attritional claims severity inflation between regions over the last two years, with a 9.5% difference between the fastest and slowest increasing regions.

Region Average cost per claim - Increase (2016 to 2018)
Wales 22.4%
North East 22.4%
South East 21.4%
Scotland 20.8%
Eastern 20.4%
South West 19.8%
West Midlands 19.8%
East Midlands 18.7%
London 16.7%
Yorkshire 15.3%
North West 12.9%

Whilst the North West maintains its position as having the highest average cost per claim (ACPC) at £5403, it is Wales and the North East that have been on the march in terms of severity claims inflation, jointly topping the rate of inflation list with 22.4% over two years. However, different drivers are behind the changes in Wales and the North East. AD and TPD have been the primary drivers in the North East, whereas Wales has seen pressure from all three types of cost and its bodily injury inflation rate has been notably higher.

 

"Claims inflation is expected to rise further in 2019. Increasing efficiency and improving claims handling accuracy will prove decisive.”

Tom Helm 
Head of Claims Consulting

With an increase of £985 in ACPC over this two-year period, the North East closes its gap on the North West’s top spot to just £15, compared to a gap of £383 in 2016. Meanwhile, London and the East Midlands benefited from a slower than average rise in inflation, which resulted in these being the only two regions to actually improve their positions in the ACPC league table, each moving one position to third and eighth respectively.

Tom Helm noted: “Claims inflation is expected to rise further in 2019, compounded by the impact Brexit could have on the cost of imported parts. As a result, the trading environment will remain challenging for an industry already going through significant transformation, driven by rising customer expectations and a new wave of digital-first competitors disrupting the market. Increasing efficiency and improving claims handling accuracy will prove decisive in such conditions.

“Those insurers who have a clear data-enabled claims strategy to leverage the advancements in technology and artificial intelligence will be best positioned to win through and deliver a cutting-edge service to their customers, whilst maintaining tight control of costs and a robust protection against fraud.”

Stephen Jones, Lead, P&C Consulting, at Willis Towers Watson said: “The Claim Metrics benchmarking service provides a strong complement to our market-leading insurance price index, produced jointly with Confused.com, providing our insurance clients with a unique tool for identifying performance improvements, as well as offering underwriters, pricing teams, actuaries and senior management vital insights into profitability drivers and trends.”