Willis Towers Watson: Motor claims inflation rises

The average cost per motor claim rose to £4,791 last year, according to benchmarking analysis from Willis Towers Watson.

Motor claims payout inflation in the UK rose by 8.6% last year. This latest annual rise in claims inflation represents the fourth consecutive increase, which has now risen by £760 since 2016.

Gross accidental and third-party property damage are increasing at the fastest rate, with claims inflation for the former rising by 13.6% in 2018 and the latter 11.1%, according to data from Willis Towers Watson’s Claim Metrics, which benchmarks more than £9.5 billion of motor claims spend and is supported by major players in the UK motor market.

Tom Helm, head of claims consulting at Willis Towers Watson, commented: “The cost of settling claims continues to climb, despite accident volumes being fairly stable. A combination of factors are 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.”

Willis Towers Watson also found 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.

While the Northwest maintains its position as having the highest average cost per claim at £5,403, it is Wales and the Northeast that have been on the march in terms of severity claims inflation, jointly topping the rate of inflation list with 22.4% over two years.

Different drivers are behind the changes in Wales and the Northeast.

Accidental and third-party property damage have been the primary drivers in the Northeast, whereas Wales has seen pressure from all three types of cost and its bodily injury inflation rate has been notably higher.

Helm noted: “Claims inflation is expected to rise further in 2019, compounded by the impact Brexit could have on the cost of imported parts. 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. Increasing efficiency and improving claims handling accuracy will prove decisive in such conditions.”

“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.”

Stephen Jones, lead for property and casualty consulting at Willis Towers Watson, said: “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.”

Mark Dugdale