31 Jul 22

Europe's insurers report fewer claims but higher repair costs

A new report from Insurance Europe, the European insurance and reinsurance federation, reveals growing pressures on insurers to increase motor premiums as traffic volumes return to pre-Covid levels on the continent’s roads.

The Brussels-based federation has reported an increase in claims frequency in 2021 compared with 2020, when work-from-home edicts kept many vehicles off the road. Claims frequencies are still below pre-pandemic levels, but the cost of settling claims is rising rapidly due to inflation and the shortage of replacement parts to repair vehicles.

“In motor insurance, although the frequency of claims generally increased, it was not yet back to the same level as before the pandemic, whereas the cost of claims rose steadily,” said the report.

Rising claims costs

In Italy, for example, the average cost of motor third-party liability claims increased to €4,800 in 2021 from €4,560 in 2019, and in Spain the cost of claims jumped by 7.6%. In France, rising costs meant that total claims paid were almost at 2019 levels, with claims frequency soaring by 18.1% year-on-year (albeit still lower than 2019) and a huge 24.7% rise in bodily injury claims.

Sweden’s insurance association attributed the higher cost of claims to the increase in the number of hybrid cars, whose replacement components are usually more expensive, while in neighbouring Norway, commercial motor insurance premiums leapt by 32.9% in 2021 after the resumption of business activities.

There was better news for drivers in Germany, where the growth in total premiums was only 1% in 2021, compared to the previous year, a significant fall on the average 3.1% annual rises between 2016 and 2019, while in the UK average premiums fell by 7% compared to 2020, although cost pressures started to appear in the final quarter of last year.

The UK’s Association of British Insurers (ABI) said in May that the average price paid for comprehensive motor insurance during the first quarter of this year was 5% lower than the same period of 2021, helped to some extent by a new law (The Civil Liability Act) which has helped to tackle the high number and cost of whiplash claims.

Longer repair times

However, the ABI warned that the continued global shortage of semiconductors is increasing vehicle repair times, which raises the cost of replacement vehicles while a car is off the road being fixed.

Repairs are also becoming more expensive, with inflation impacting the price of raw materials, such as paint.

James Dalton, the ABI’s Director, General Insurance Policy, said: “Like other sectors, motor insurers face rising costs.”

Looking ahead, EY forecasts that motor insurers will make a loss this year due to underlying inflation and premium rate falls, leading to an 18% increase in consumer motor premiums in 2023 as inflationary pressures feed through into claims costs.

Image: Shutterstock

Authored by: Jonathan Manning