Cost of settling UK motor claims soared 8.6% in 2018: Willis Towers Watson

Motor claims payout inflation in the UK surged by 8.6 percent in 2018, representing the fourth year of consecutive increases, which combine with further rises in 2019 has increased the pressure on premiums, a benchmarking study found.

The rises in 2018 pushed up the average cost per claim (ACPC) to £4,791, according to an analysis by Willis Towers Watson’s Claim Metrics benchmarking unit. It found that the ACPC has soared by £760 since 2016.

Gross Accidental Damage (AD) and Third-Party Property Damage (TPD) are increasing at the fastest rate, with AD claims inflation rising by 13.6 percent in 2018, followed by TPD claims inflation at 11.1 percent.

“The cost of settling claims continues to climb, despite accident volumes being fairly stable,” explained Tom Helm, head of Claims Consulting at Willis Towers Watson. “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 percent 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.”

The unit also found a “wide variance” in the rate of attritional claims severity inflation between regions over the past two years, with a 9.5 percent difference between the fastest and slowest increasing regions.

The highest average cost per claim (ACPC) was in the North West of the UK with £5,403. The biggest increase in severity of claims was found in Wales and the North East, where claims inflation soared by 22.4 percent over two years.

Analysts said different drivers were responsible for the rises in Wales and the North East. AD and TPD have been the primary drivers in the North East, while Wales has seen pressure from all three types of cost and its bodily injury inflation rate has been notably higher.

Helm said: “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.”

The Claim Metrics benchmarking unit provides personal lines insurance market data, benchmarking more than £9.5 billion of motor claims spend.

Stephen Jones, lead, P&C Consulting, at Willis Towers Watson, added that the service offers “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”.

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