Motor claims inflation increases by 8% in 2018 with further rises expected

The average UK cost per motor claim was £4,791 in 2018 amid claims increasing by 8%. 

This was according to Willis Towers Watson’s (WTW) latest Claims Metrics benchmarking analysis which looks at claims’ activity in the personal lines’ insurance market for a spend of over £9.5bn of motor claims. 

The latest annual rise represents the fourth consecutive increase in the average cost per claim, which has now increased by £760 since 2016. WTW said more rises were expected this year.

There was 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.

Tom Helm, head of claims consulting at WTW said: “Claims inflation is expected to rise further in 2019, compounded by the impact Brexit could have on the cost of imported parts.”

He explained that 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”.

But Helm said that increasing efficiency and improving claims handling accuracy will prove decisive in such conditions. 

Sharp rises

The places incurring the sharpest rise in claims inflation were Wales and North East at 22.4% between 2016 and 2018.

Various drivers are behind these changes, such as gross accidental damage and third-party property damage, which were considered the primary drivers in the North East.

With an increase of £985 in average cost per claim over the two-year period, the North East closed the gap on the North-West’s top spot to just £15, compared to a gap of £383 in 2016.

However, Wales has seen pressure from all three types of cost and WTW said the bodily injury inflation rate has been notably higher.

The North West of England maintained its position as the region with the highest average cost per claim at £5,403 in 2018.

The South West had the lowest average claimants per claim as well as the lowest average cost per claim in 2018 at £1,315, below the North West.

 

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%

Improved position

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 improve their positions in the average cost per claim league table – each moving one position to third and eighth respectively.

“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,” Helm added.

Claims activity

According to data from WTW’s Claims Metrics, gross accidental damage and third-party property damage are increasing at the fastest rate – the former rose 13.6% in 2018 and the latter increased at 11.1%.

Helm said the cost of settling claims continues to climb despite accident volumes being fairly stable.

He continued: “A combination of factors is 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.”

WTW’s lead in P&C consulting, Stephen Jones, added: “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.”