By Emma Fuller, Partner - Head of Motor and Casualty Market Strategy, DAC Beachcroft - Claims Solution Group and Pete Allchorne, Partner - Head of Strategic Advisory, DAC Beachcroft - Claims Solution Group.
Despite the number of vehicles on the UK's roads returning to pre-pandemic levels, claims volumes have not. There is a downward trend across every category of claim since early 2023. The picture, though, is still not a positive one for motor insurers as the cost of claims has bucked the trend and continues to increase considerably.
There are, of course, a number of reasons for this, including a period of stiflingly high inflation, challenges in parts and labour supply and the proliferation of ever more expensive vehicle parts arising from Advanced Driver Assistance Systems (ADAS) and Battery Electric Vehicles (BEVs).
Rising repair costs are a major component of increasing claims costs and represent a challenge for insurers. In the short term, the industry must find ways to improve the use of second hand and green parts options that repair networks have access to. This will both lower costs and improve ESG credentials. In addition, closer collaboration with vehicle manufacturers will help to promote designs that are less expensive to repair and also safety focused. Insurers can also play a vital role in reshaping repair networks to support the transition to BEVs and other new sustainable powertrains by assisting the repair sector to acquire the tools necessary for safe repair and storage of vehicles equipped with these emerging technologies. They can also help with the training and supplying of the ten thousand new technicians that Thatcham Research says will be needed across the industry within the next decade.
Insurers must also take advantage of enhancements in technology, including AI, to optimise claims handling speed and efficiency, flag potentially fraudulent claims, and improve the customer engagement and interaction – not just at the point of sale or claim. For instance, more extensive use of mobile apps will give insurers the opportunity to provide much needed education about advancements in vehicle technology and, perhaps more importantly, its limitations. This is especially important for those drivers who are less familiar with the new technology, particularly new and elderly drivers.
Maximising engagement with policyholders will also allow insurers to improve the claims process, by working with customers to make them a more integral part of the evidence gathering process, providing better (and better advertised) incentives for the use of vehicle locators and dash cams, and educating them regarding the need for cogent evidence collection at the scene of an incident.
A substantial amount of savings can be achieved by improving credit hire provisions, through regular review of bilateral agreements and consideration of joining the General Terms Agreement (GTA) where insurers are not already party to the agreement.
Looking ahead, insurers will benefit from ensuring that their policy wordings are up to date and fit for purpose. The essential components of a motor insurance policy have changed very little since the late twentieth century, notwithstanding that vehicle technology has moved on significantly. However, with BEVs (and their components) now replacing internal combustion engine vehicles, and with the advent of ADAS technologies - which mean that vehicles are doing more of the dynamic driving task in more situations than ever before, the latest vehicles are a fundamentally different proposition. Future facing policy wordings will help insurers take advantage of the opportunities these new technologies provide.
The developments discussed in this article present insurers with a number of tools to reduce the cost of claims. These savings could be passed on to policyholders, allowing insurers to assist the new government in achieving its goal of lowering motor insurance premiums.
To learn more about how the industry is tackling rising motor insurance costs, see our 10-Step Motor Affordability Roadmap. From combating vehicle theft to supporting the repair sector, this roadmap outlines key actions aimed at making premiums more affordable. For more details on how motor insurance pricing works, visit our Insurance Pricing FAQs, where we answer common questions like why premiums for young drivers are so high and how insurers calculate risk.