The current surge in car prices and cost of repairs are driving up claims cost for motor insurers, but they are a less relevant for fleet insurance as other factors are more important.
Disruption in the production lines of vehicles due to the pandemic and a shortage of semiconductor chips have severely reduced the supply of new cars. This, combined with a general increase in raw material costs have boosted the value of new cars. Prices for some of Britain’s most popular new cars have increased by more than a quarter over the past three years, according to research by HonestJohn.co.uk (opens a new window). The same issues have also impacted the availability of spare parts, which have also become more expensive. Furthermore, the lack of new cars on the market has decimated dealer stocks of second-hand cars, resulting in increased competition for available used motors, which then drives up prices. The average price of a used car on Auto Trader’s marketplace in February had increased 29% (opens a new window) over a twelve-month period, with some nearly-new cars selling at more than their brand-new equivalents (opens a new window).
Impact on insurance
Since insurers pay market value for parts or car replacements, claims costs have been rising for motor insurers. Between 2015 and 2020, the average amount paid for damage to policyholders’ vehicles increased by 59%, and the average paid to third parties for damage to their vehicles rose by 32%, according to the Association of British Insurers (opens a new window) (ABI). Repair costs are also on the rise because technology plays a greater role in vehicles, making repairs more expensive. However, in the past two years traffic was reduced due the pandemic, keeping insurers’ overall claims cost unusually low. With road traffic returning to pre-lockdown levels, traffic incidents are starting to rise, and eventually premium is likely to follow. This has already impacted the private car (personal lines) insurance sector: In the fourth quarter of 2021 the average premium paid rose by £11 on the previous quarter to £440 (source ABI).
For fleet owners though, car and car parts price inflation are not likely to have a significant effect on premium as these are generally already priced in. Insurers are less concerned about car prices than the potential damage to third parties as this is what can really turn the dial from a claims' perspective.
Factors influencing fleet insurance premium:
Frequency and type of use
Claims history: Frequency of claims and costs
Type of vehicles
Age of the fleet
Risk and claims management
Nevertheless, to ensure the best outcome at renewal of the fleet insurance contract, fleet owners should take appropriate action to reduce their risk exposure. These measures should be clearly documented with evidence of their efficacy so that this information can be included in the presentation to insurers.
Electric or hybrid vehicles have lower CO2 emissions which may positively reflect in premium cost.
Security and safety features such as automatic emergency braking (AEB) may help reduce insurance rates.
Encourage positive behavioural changes in your business drivers.
Issue regular communications and engage in safety campaigns and driver feedback sessions.
Rewards for best fuel consumption performance/safest driver/best kept vehicle can positively influence driver behaviour.
Perform regular vehicle maintenance.
Require drivers to check tire pressure, oil levels, brake performance on a daily basis.
Keep an eye on records of when services are due.
Fit in telematics data capture and cameras to help improve driver behaviour and reduce incident frequency.
Cameras will also help to identify fault in accidents and settle claims.
Telematics data can reduce fuel consumption, driver behaviour, collision rates and insurance premium.
Keep a strict selection process for drivers with licence and criminal conviction checks, driving penalties, and test a driver’s attitude and interest in improving skills.
Introduce mandatory training to drivers with bad accident records.
Introduce immobilisers in addition to alarms.
Keep your fleet in a garage or compound over night or when not in use.
Work closely with your broker to reduce the cost of claims.
For further information, please contact:
Steve Vachre, Motor Practice Leader
T: +44 07391 385697