Insurance industry grapples to solve rise in motor claims inflation

Cyclist Joanna Davies was happily pedalling on her e-bike when a partially sighted cyclist nearly killed her. 

Davies was hit and dragged along the road for 20 metres, blacking out. 

 “When I came to, I was being dragged along with my head inches from the rear wheel arch before I was able to free myself and roll away,” she says. 

The Aviva-insured elderly driver admitted liability. The claim will cost Aviva up to £11,000 as it pays for the damaged bike and loss of earnings. 

Ms Davies is part of the rising numbers of cyclist accidents, driving up claims inflation in a new trend to emerge during the pandemic.  

Changing claims trends

Claims inflation is up 6% for the first half of this year, according to the Willis Towers Watson’s claims metrics index, causing a headache for insurers as they look to solve the challenge. 

WTW head of claims consulting Tom Helm says the lockdown and subsequent reopening has caused a different claims make up.

A good example is cyclist claims, which are typically high in severity but low in volume. The number of claims has doubled in the last period. 

The takeaway is that insurers must be more focused than ever on claims data, spot the trends and then act.

Helm says: “Understanding this change in mix of claims types during the lockdowns is important because, whilst overall accident frequency was down, an increase in the proportion of  higher-severity claim types, like accidents with cyclists, has been a key driver behind the latest increase in average claims cost.

”It also means we cannot solely rely on assumptions and patterns of the past to forecast future claims outcomes. Tracking whether this mix fully readjusts in the second half of 2021, as driving levels return to 90% of pre-pandemic levels, will be vital.”

Supply chain challenge 

Another area where insurers can find solutions to control claims inflation is around the supply chain and spare parts. 

The squeeze on supply chains, in addition to the rising cost of imports post-Brexit, has made vehicle damage claims more expensive. 

Allianz head of motor claims, Ian Kershaw, says there are ways to tackle this challenge.

“Various factors are pushing motor claims costs up.

“Some spare parts are getting scarce and, with fewer freight drivers on the roads, it is taking longer to bring them from factory to bodyshops.

”The best way to tackle this supply chain challenge is to work in partnership with your providers. Building long-term, supportive relations gives your suppliers some stability in these very uncertain times.

”And this, in turn, helps you secure access to the parts and services you need to handle claims. The most important thing is to keep claims lifecycles as short as possible, as that will help maintain customer satisfaction and contain costs.

“Prices for second-hand cars, which had been going up and making claims more expensive, are now expected to slow down next year.”

Bodyshops critical 

Chief executive of handl Group, Graham Pulford, agrees that insurers must work with their providers - especially those in the bodyshops. 

He says that bodyshop staff have gone from furlough to now working at full tilt. Pay them a bit more, and there can be rewards.

”We have also have a recovering bodyshop network that has gone from zero work to running at ful tilt.

”We have capacity issues within UK bodyshop network. It is perhaps about incentivising them to get it done quicker and faster,” he says.

Another tactic can be to keep vehicles out of the repair garages for longer periods. 

Pulford says this will mean insurers having to closely look at the definition of undeliverable vehicles.

Pulford says: ”There does not have to be a hard and fast line because it has a dent in the wing. You could take a different position on those by saying it is okay to run around with a dented wing for a few weeks.”

The final piece in the jigsaw to controlling claims costs will be understanding and controlling the costs around advances in vehicle technology.

Once again, it is the bodyshops that will play a crucial role. 

Kershaw says: “Another trend that is expected to continue, however, is vehicle technology: electric batteries or advanced vehicle assistance systems (ADAS) may cost a lot.

”To cope with this, you need to work with bodyshops that have the skills and equipment to repair these vehicles. That is exactly what we looked at when we appointed our new approved repairer network,” he says. 

“Other initiatives can have a positive impact too, like prioritising repairs over replacement and recycling spare parts. We launched a platform that helps bodyshops source green parts.

”Not only does it keep costs down but it also measures the emissions that have been saved in the process. When we consider savings, we also think about emissions savings. That is part of our long-term plan.”