Commercial motor claims inflation in 2022

  As you’ll no doubt be aware, inflation has seen a meteoric rise in 2022. We’re talking once-in-a-generation stuff. So, it’s no surprise that inflation is affecting the claims arena, too. Of course, it’s not as simple as looking at inflation increases and applying them to commercial motor claims, there are several factors involved in how inflation affects claims costs. 

We went to our resident claims expert, Jeff Doust, to find out exactly what’s been happening. Not only is Jeff a fantastic claims manager at Humn, but he also boasts more than 25 years of experience in the industry. We think it’s fair to say he’s got his finger on the pulse of the claims world. In this blog, we use Jeff’s know-how to explain the cause and effect of motor claims inflation, and what it means for our policyholders. 

Just in Time production

It’s not just the COVID-19 pandemic that’s had a marked effect on supply chains. Other events, like the grounding of the container ship Ever Given in the Suez Canal and the war in Ukraine, have added to the problems. This is because many manufacturers rely on a Just in Time production system. 

What is a Just in Time production system? It means a company doesn’t stockpile reserves. Instead, they supply just the right amount of goods or services as and when required. 

So, how does this all affect the Motor Claims arena? As well as the issues mentioned above, Ukraine produces around 70% of the global neon supply, which is a key component in the manufacture of microchips. Because of this, vehicle repair is taking longer. And the longer a vehicle repair takes, the longer a credit-hire vehicle is with a third party. This leads to an increase in the cost of a claim.

Generally, the cost of repairs, labour and parts have increased, and combined with long waiting times for new vehicles, the second-hand market has exploded, meaning total loss settlements have increased, too. The shortage of new and second-hand vehicles is also leading to an increase in vehicle thefts, further driving up the cost of claims. 

Ogden Rates

 While changes to the Ogden discount rate – now at -0.25% – have been in place since before the pandemic, the effect of the change from +2.5% to -0.25% has been reflected in reinsurance rates increasing. Reinsurers will rate now to futureproof what they may end up paying in the future. While our attritional claims rate is excellent, and our reinsurance renewals reflect that to a point, we’re not totally exempt from reinsurers futureproofing their book of motor business.

Personal Injury claims and the Judicial Studies (JC) Guidelines

This year has seen an increase in the Guidelines for the first time since January 2020. In real terms, this equates to around 6.56% across the range of injuries. While the Whiplash Injury Regulations 2021 and the tariff changes to whiplash injuries do help – most RTA injuries involve only whiplash – we have already seen a rise in additional injuries now being claimed alongside whiplash.

So, what is this as a number? It’s estimated that claims inflation, which was 6.1% in 2021, will increase to 10% so this will, unfortunately, be reflected by rises in premiums. That said, our policyholders can look to keep their fleet insurance costs down in several ways. 

Keeping down insurance costs

1. Don’t have any accidents! Okay, we know this is an incredibly obvious point to make. And we know that people are out there having accidents on purpose. But, at the end of the day, a fleet that better manages the way their vehicles are driven will have lower insurance premiums than those that don’t. Not sure how to get your drivers to improve? We can help! In fact, we have an in-house behavioural science team that researches the best ways to do it. Get in touch to find out more about improving driver safety. 

2. If you do have an accident, make sure it is reported quickly and honestly. Quickly, because in the event of a fault claim, our claims team can speak to the Third Party directly. This helps to prevent expensive credit repair, or credit hire claims, which increases the cost of a Third-Party claim by around £3500 on average. Sometimes, our claims team will also be able to avoid a personal injury claim by getting a Third-Party vehicle repaired and providing another vehicle during that repair. How? Because an early admission, and a commitment to get the Third Party back in the position they were before the accident, are likely to make them happy, and therefore probably less inclined to make any injury claim. Honesty is vital because it saves wasting time and money on a claim a policyholder says is non-fault, but is actually fault.

3. If you’re a broker, use your skills to assist your clients in managing their risk. This could be:

a.promoting our Rideshur product to help improve driver safety,

b. encouraging your clients not to penalise drivers in the event of a fault accident (this leads to drivers not reporting accidents, which, in turn, leads to a higher claims settlement),

c.     and following our claims processes, particularly on reporting and assisting our claims team and your client towards the optimum resolution.

If you’d like to find out more about how Humn can help you reduce claims through safer driving, drop us an email at hello@humn.ai. We’d love to discuss it with you further. 

‍