It’s important for us as insurance brokers to be able to understand and explain the industry-wide, significant growth in claims inflation, that’s been taking place over the last couple of years. To get a full and accurate picture of what’s going on, we need to be looking at a whole myriad of interrelated factors:
Supply Chains
Global supply chains have been heavily impacted by a number of factors, including the Ukraine war, Brexit, and residual repercussions of the Covid-19 pandemic. Ukraine produces around 50% of the world’s neon1, which is required for the production of semiconductor chips. Semiconductor chips are the basic building blocks of modern technology and are therefore all around us, daily. From vending machines to vehicles, phones to pacemakers and sound bars to satellites, these tiny components are everywhere. There can be up to 1,500 semiconductor chips in any car we drive, found in anything from bumpers to wing mirrors and by September 2022, the average price of semiconductor chips had increased by 95% since the start of the war2.
What’s more, a weak GB pound has pushed up the cost of many imported items, reducing the purchasing power of UK importers and manufacturers. And although China has now abandoned its Zero Covid policy and lifted lockdowns, three years of them have led to damaging delays in important manufacturing and logistics centres, impacting global supply chains.
Impact on Insurance: The length of time taken to settle a claim is extended due to supply chain disruption for key parts, components, raw materials, assembly of machinery, vehicles and manufacture of all manner of repair or replacement goods, and loss of earnings compensation, so increasing the cost of any given claim.
Energy Price Pressures
Every industry and business sector (not to mention domestic residents) is being challenged by soaring energy prices. This is impacting every stage of repairing, replacing or rebuilding an insured asset. Although the UK relies on Russia or Ukraine very little for gas or electricity, large parts of Europe do. The UK does, however, import a significant supply of energy from Europe, although this is becoming increasingly challenging (and for challenging, read expensive) as Europe stockpiles for its own use.
Likewise, the cost of manufacturing in Europe has also increased due to soaring energy charges, which further impacts the costs of materials and goods imported to the UK.
Impact on Insurance: Soaring energy costs impact every stage of the repairing, replacing or rebuilding process, with each stage recouping costs from their customers, which is ultimately reflected in a client’s premium.
Labour shortages
A combination of decreased EU immigration, the rising cost of living putting people off training, an ageing population and the long-term effects of the global pandemic has led to a skills shortage in the UK. There is a general shortage of labour across the board and a significant increase in those classed as economically inactive and of working age. The rising cost of living, coupled with the need for more specialist skills, results in those who do have sought-after skills, being able to secure increasingly higher wages, so creating wage inflation across almost every industry.
Impact on insurance: The above factors (scarcity and higher wage costs) are contributing both to claims inflation and longer lead times for repair, replacement or rebuild – and ultimately claims settlements.
Theft and fraud
Increased incidence of theft is a concern, which is expected to continue during the cost-of-living crisis, particularly with criminals stealing vehicles to order. Additionally, the rising cost of materials and shortage of car parts means that car thieves can profit from stripping vehicles and selling the components.
Keyless vehicle theft is also at an all-time high. 94% of vehicles recovered by recovery specialist Tracker in H1 2022 were stolen using keyless car theft techniques3.
Manufacturers are aware that certain marque vehicles are being targeted by professional gangs and are now fitting better protection systems to new vehicles. However, there are still a substantial number of theft-attractive second-hand luxury cars, such as Range Rovers, that are vulnerable to relay attacks as well as hold-ups. We’ll always advise clients to lock their doors when in their vehicles!
Impact on insurance: Replacement vehicles due to theft are taking longer to be supplied, temporary vehicles are more expensive to loan than previously and repairs to vehicles that have been damaged during a failed attempt are taking longer to be completed. Once again, all these factors conspire to drive up insurance claims inflation.
What Can We At C&C Do To Help Clients in a Hardening Market
In the first instance, we always establish an accurate history of client Management Information to ensure we’re searching knowing the full picture. We then search across the full market, looking at all viable providers and schedule types to present our clients with options. Some price increases could be offset against higher excess values or exclusion types. Either way, we won’t leave a client exposed, but the policy options we seek can be tailored to reflect their individual situation, whether a business or private client.
The important thing is to reduce the likelihood of a claim, which in itself could compound the effect of inflation on the premium when it next becomes due. Very simple steps such as keeping car keys in faraday pouches or boxes will shield keys from would-be signal attacks. Likewise, although it may sound somewhat retro, the old-style crook locks or steering locks can work as effective deterrents. If a potential thief has set out with a techy solution to take a car, the chances are, they won’t be prepared to overcome a physical barrier.
So, despite technology marching on, sometimes going old school is the way forward!
Sources:
1: Reuters: Russia’s attack on Ukraine halts half of the world’s neon output for chips. 11 March 2022.
2. SMMT: Long-term solutions needed to tackle surging costs. September 2022.
3. Tracker: Tracker calls time on tech-savvy car thieves. July 2022.
Image: Dreamstime
