Technology has become an integral part of UK driving and vehicles are being made with high-tech gadgets such as satnavs and parking censors.
However, insurers are saying there is a major disadvantage with all the advanced gadgetry employed in creating the vehicles. The insurance claims for the expensive high-tech vehicles are reducing their profit margins and share prices.
Over the last few weeks, some of UK’s biggest motor insurers such as Direct Line and Hastings have said the cost of settling claims is rising. This is because the cars are becoming more high-tech and very complicated to fix.
Toby van der Meer, chief executive of Hastings said that accident volumes are pretty stable but the cost per accident is driving inflation. He said more expensive vehicles are safer than other cars, but are more expensive to repair. This is because it’s not just repairing a piece of bent metal, but fixing all the technology and sensors.
However, it’s not just the price of repair that has sky rocketed. Labour costs have also gone up as the cars are becoming more complicated to fix.
Another high-tech related problem that is increasing the number of claims is car theft. The Association of British Insurers says that car thieves are hacking into the data sent when key fobs are used to open car doors. They use this information to steal vehicles. The ABI says the industry paid out 376 million pounds for car theft in 2018. The amount was 27% more than in 2017.
Add all these factors together and UK’s car insurance costs are rising. Normally, the insurance companies try to cancel out the higher claims cost by increasing their prices for the customers but they are struggling to do so this year. The average premium, according to ABI, is 6% lower than it was at the end of 2017.
According to Tony Sault, UK general insurance market lead at consultancy EY, the market is now very competitive. He says Companies are deploying strategies to build their books and undercutting all rivals to increase their volumes.
According to EY, the industry’s underwriting profit in 2017 was the highest since 1994. This is because the insurers were able to raise prices and it gave some the financial flexibility to expand in 2018 and 2019.
UBS analyst Jonny Urwin said that mid-market insurers were keenest to grow and were pushing prices down. He said that although volumes at listed companies have been weak for some time, the players were acting rationally. However, the listed companies still faced competition from the mid-market.
Mr van der Meer said all of the pressures facing motor insurers should even out in time. In the long term they expect premiums to match or exceed claims inflation. He said at the moment they were controlling the levers they can control. They make sure they do the repairs at the most economic cost, price effectively, increase retention and remain low cost.