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Claims Inflation In The Vehicle Hire And Damage Arena

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By Emma Fuller


Published 09 February 2022


There has been much talk recently of falling motor premiums, reduced claims volumes and a drop in fraud rates thanks to the whiplash reforms. With all of this positive news, the increasing claims inflation in the motor damage arena may not have been getting as much attention as it perhaps deserves.

According to latest data from Willis Towers Watson, claims inflation increased by 6.1% for UK motor insurers during first half of 2021. Specifically they noted that accidental damage had increased at the fastest rate ever over the last 18 months: by 8.2% during H1 2021 and 8.4% in 2020.

Of course, the cost of everything is going up, but why is this being felt so heavily in the vehicle hire and damage arena? In this article, we will be looking at where this inflation is coming from, what we predict will happen in 2022 and, more importantly, what can we do about it.


Causes of inflation


The main cause of inflation in this area is undoubtedly coming from increasing repair costs. COVID and Brexit have come together to increase part costs and delays in the new parts supply chain. This, combined with a lack of skilled mechanics and professionals has hugely impacted bodyshop productivity and increased the claims life cycle.

For several years now the increasing cost of vehicle parts has been influencing year on year inflation in accident damage claims. This increase has now reached an unprecedented rate. Vehicles are now more software than hardware and are full of components which make the repair process more complex and more expensive. In addition, due to the various technologies found in vehicles, very few parts are held by bodyshops. Garages need to order these parts in, and are therefore reliant on supply chains operating effectively, often involving several different countries, for swift delivery. Import issues caused by Brexit, freight driver shortages and restrictions implemented due to the pandemic are delaying the supply.

Our data suggests a 12% increase in repair costs from end of 2020 to end of 2021, and this doesn’t look like it is slowing down any time soon. Although claims volumes are down due to the pandemic, there is a concern that many motor claims have not yet been made, with people choosing to drive damaged cars until backlogged garages have improved availability. This combined with the fact that road usage has almost returned to post pandemic levels suggests this inflation is going to impact claims spend more than ever in 2022, with both frequency and cost continuing to increase.

The increase in frequency of repair is perhaps surprising in light of the unprecedented increase in repair costs. We would have expected this to lead to a corresponding increase in economic write offs, but this ignores the impact of the price and availability of new and used vehicles, as discussed below.


New and used vehicle costs

Supply chain issues are not just having an impact on repair costs, they have also caused dramatically reduced circulation of new vehicles. In addition, a shortage of microchips has slowed new car production (a reported 37.6% drop in car manufacturing levels, according to the Society of Motor Manufacturers and Traders), meaning there are substantial waiting times for certain types of vehicle. So not only is there an upwards costs pressure, but the delays in obtaining new vehicles are causing many buyers to look at used cars as an alternative, resulting in unprecedented cost hikes in that market too.

Auto Trader have recently reported that used car prices have increased by 21.4% in the past year, with some having gone up almost £10,000 in five months.

Total loss costs have obviously increased as a result, with customers expecting more for their vehicle if it is written off. This means that the decision to total loss a vehicle where there are repair delays may not be as easy to make, leading to increased pressure on storage and rental periods.


Electric vehicles

Other factors having an impact on accident damage costs are the advancement of technology and the increased volume of electric vehicles (EVs) on our roads. Not only are the parts costs high, but the Institute of the Motor Industry predicts that by 2030 the UK will need around 90,000 qualified technicians to service the rapid growth of EVs, as the government ban on the sale of new petrol and diesel vehicles from 2030 approaches. Based on current growth estimates, there could be a shortfall of 35,700 technicians trained to handle EV repairs. As demand for these specialists grows, salaries will increase, meaning extra cost in the system which is ultimately passed on to insurers and the consumer.

The cost of EV claims is also influenced by repair delays, with an EV repair taking significantly longer to complete than one on a vehicle with an internal combustion engine. Again, this is having a knock on effect on storage and hire costs.


Hire costs

All of the delays discussed above are having a direct impact on credit hire durations and overall costs. Periods claimed increased by 5 days in 2021 according to DAC Beachcroft data, although paid amounts are currently remaining in line with 2019 figures. It is anticipated paid amounts will increase slightly in 2022 as more 2021 claims settle. Based on previous savings made at times of inflation, we are only expecting this rise on actual paid amounts to be approximately 2 days.

In addition to period increases, hire costs are also being impacted by rate increases and supply issues. Due to the backlog being faced by garages, many do not have available courtesy cars, meaning more people may turn to credit hire if they are not offered a suitable replacement vehicle by the at fault insurer. In addition, as the demand for new vehicles increases, many hire companies have reduced fleets meaning more competitive rates can be charged. Some rates increased by over 100% in 2021, having an impact on any basic hire rates obtained to defend claims. These rates have now started to decline and are returning to a more stable level. However, the impact of the increases in 2021 are likely to start coming through in settlements this year, meaning hire spend can be expected to increase not only on period, but also rate. Thankfully, rates have again started to decline, dropping by 25% in January 2022. This downward trajectory is expected to continue month on month.


Other damage related heads of loss

Other heads of loss such as storage charges are also increasing due to the delays being faced by the repair industry. In addition to this, we have seen a 14% increase in the volume of non-injury related damage claims, such as diminution. It is thought this increase is due to attempts to increase claims values over £10,000.00 to avoid the new OIC portal, as well as claimants pushing for higher settlement amounts to help towards the increased cost of living we are all currently facing.



Much of the inflation we are faced with as an industry is inevitable, and damage claims spend can only be expected to rise further in 2022. However, there are solutions available to us to mitigate its impact, and to ensure claims spend in this area is kept as low as possible.


Supply chain relationships

An intrinsic part of controlling accident damage inflation is the supply chain and the relationships in it. It has never been more important to be working in partnership with your network to ensure they have sufficient resource to work at capacity, as well as the skills and equipment to repair all vehicle types- including EVs and advanced driver assistance systems (ADAS). Insurers need to ensure their partners have ready access to parts, and will provide a commitment to ensure repair lifecycles are kept to a minimum.

In relation to mobility providers, again, the supply chain needs to ensure there is access to all vehicle types, with delivery the same day as the accident. Credit hire for EVs in particular is extremely expensive, so ensuring there is access to a network who can readily provide an alternative to credit hire can save tens of thousands on one claim alone.


Green parts

The utilisation of green parts is also extremely useful in tackling the period increases caused by supply chain issues and delays in parts. Using reclaimed, warranty assured parts is not only better for the environment, but can put customers back on the road sooner, and can mean repairs are completed at a lower cost.

 There does not seem to be many down sides to having a green parts strategy. The majority of motor policy wordings allow for the use of alternative parts, and there can be little complaint from a customer (or a third party) when green parts are offered, considering motor insurance policies are based on the principle of returning the customer to the position they were in before a claim. Using new parts on a car that isn’t brand new is therefore technically betterment.

It is important for insurers not only to have suppliers who have ready access to green parts when they are handling the repair, but a strategy should also be developed to ensure green parts can be offered to mitigate ongoing third party repair and hire claims being managed by someone else.

Defending hire and damage claims

How third party hire and repair claims are defended will also be of vital importance in keeping spend in this area down. Although there is inflation in this arena for all the reasons discussed above, we have unfortunately seen some representatives trying artificially to inflate the costs even higher, seemingly hoping insurers will just put it down to the general costs of inflation.

Having robust screening of repair invoices and total loss reports will assist in mitigating this, as well as robust credit hire strategies.

One tactic we have seen increase by 14% in the last 12 months is where roadworthy vehicles are taken into garages to await repair. Considering the current backlogs being faced by some garages, there can be no justification for this. Courts are alive to this issue and are making sensible judgments when faced with this tactic. These claims should be robustly defended. In addition, any credit hire protocol that binds the insurer to accept the period claimed should be reviewed, as any such tactics designed to drive up period will obviously have a huge detrimental effect on credit hire spend.

Of course, intervention and making proactive attempts to place a third party into an insurer’s own network will be more important than ever.


Predictions for inflation in 2022

Although of vital importance, being able to predict accurately how damage inflation is going to go in 2022 and beyond is extremely difficult.

The seemingly neverending increases in cost of living and general inflation are expected to have a continued detrimental impact on vehicle damage costs. The inflation in energy and fuel costs alone will undoubtedly continue to increase parts. The National Body Repair Association predicted in their first group summit of 2022 which took place in January that the “challenges afflicting the sector will persist for another 18-24 months.” However, encouragingly, it is also reported that more garages are using reclaimed parts, suggesting repair times and costs may start to stabilise. In addition, prices for second hand cars are expected to slow down this year.

Hire rates are already stabilising, suggesting inflation on hire costs should be minimal in 2022. However, based on all the above factors, as well as the ongoing uncertainty in relation to cost of living inflation, it is predicted that inflation on repair costs in 2022 will continue at a similar rate as 2021.

Thankfully, the impact of the whiplash reforms should be more widely felt in 2022, and should help mitigate the continued inflation in the damage arena. Motor claims continues to be an area of change and uncertainty. However, what is clear is the vehicle damage area is currently a difficult one to operate in, and further inflation is inevitable in 2022. A well prepared strategy for defending hire and damage claims may be a key differentiator.


For more information or advice, please contact one of our experts in our Vehicle Hire & Damage Team.