Settlement Delays Likely to Worsen UK Motor Insurance Claims Inflation

Delays in motor claims processing may be hiding the true threat of inflation to insurers, according to global broker WTW in a benchmarking report that concludes that UK motor claims inflation is expected to accelerate in 2022.

The inflation rate for motor claims settled in 2021was over 6%, far higher than last year’s UK general inflation rate of 2.1%, indicating a sharp rise to be expected in 2022, the report says. The average cost per claim rose to £5,349 in 2021.

The analysis by WTW indicates that a slowdown in the average time taken to settle claims, due to disruption caused by the pandemic, has until recently acted as a temporary brake on claims inflation.

However, 2022 is is likely to force a sharp correction in 2022 due to a combination of rising accident frequency after the pandemic, surging global inflation, elevated used car prices, and ongoing supply chain constraints pushing up repair costs.

“The fall in motor insurance claims during the pandemic has been widely reported, but less well understood is the bottleneck of bodily injury claims that are taking insurers longer to process due to issues such as delays in medical reports,” commented Tom Helm, head of claims consulting at WTW.

“It has inevitably been a challenge for injured parties to be examined and treated due to COVID-19 restrictions and this has led to claims processing times taking longer than at any point over the previous four years. This delay in bodily injury settlements meant that settlements in 2021 had a distinct bias to lower cost ‘vehicle damage only’ claims, temporarily preventing a sharper spike in claims inflation.”

The average claim settlement time slowed down from April 2020 during the first lockdown. By the final quarter of 2021, the process was taking two months longer compared to the same period in 2019. Settlement time for bodily injury claims have been most impacted, increasing by seven months on average and now taking over two years to complete.

Other findings from the latest WTW Claim Metrics benchmarking data:

• London now takes the top spot from the North West as the region with the highest average cost per claim (ACPC), at £6,189 in 2021.
• The South West – helped by being the region with the lowest average claimants per claim – records the lowest ACPC in 2021 at £4,497 some £1,700 below London.
• The sharpest rise in claims inflation took place in the East of England, which has now risen by 23.6% between 2019 and 2021.
• SUVs felt the full force of soaring second-hand car inflation, with the cost of replacing a customer’s stolen large SUV increasing by 28% between 2020 and 2021.
• The cost to insurers to settle a customer’s vehicle accidental damage claim has increased by 20% between 2019 and 2021.
• Claim volumes in 2021 varied between regions. London figures remained considerably down compared to 2019 levels, whereas the North West saw volumes during the second half of last year increase by 16% in some months compared to the same period in 2019.
• ‘Hit in rear’ claims, historically the most common motor claim type, remained down in second place in 2021, with ‘hitting a parked stationary car’ retaining the top spot. Hitting a vehicle in the rear is almost twice the cost of hitting a parked stationary car. This will be a trend to monitor in post-lockdown claim volumes.

According to WTW’s Helm, the whiplash reforms that went into effect a little over a year ago may have contributed to the slowdown in injury settlement times. However, there are signs a lower average cost is starting to materialise for whiplash claims, which should help to offset some of this year’s increase.

Source: WTW

Topics Claims