United Kingdom

Competition holds down commercial motor insurance increases but claims inflation a cause for concern

Covid-19 has had a heavy influence on the motor insurance market for motor fleet vehicles but perhaps not in a way that many would have expected. Country wide restrictions on movement in 2020 and 2021 meant less traffic, less accidents and therefore reduced claims costs for insurers which has helped push the market into profitability.

The consequence for buyers has been moderation when it comes to rate increases, but there are still challenges finding cover in the market for those businesses with a poor claims track record particularly as the market continues to grapple with the problem of claims inflation pushing up costs and eroding profits for insurers.

Plenty of competition

Premium hikes usually steal the headlines, but the motor insurance market has seen more modest increases compared to other lines. It is expected that rating for the coming year will continue on a similar line but with a clear demarcation between the straightforward vanilla risks where there will be plenty of market competition and the more distressed risks where there are fewer market options.

One reason for the moderation in prices is the stability of capacity and the arrival of new insurtech entrants providing fresh options. Many insureds have also heeded the message to engage early with their insurer in the renewal process which has led to fewer switching to other carriers and deals completed in good time.

Claims inflation a concern

Turning to claims inflation which is impacting the market at approximately 5-10%, there are several factors at work here including the changes in long term care costs affecting larger claims. For other personal injury claims, it’s still too early to assess what impact the government’s whiplash reforms will have on claims costs given they were only introduced in May. While it could be that they reduce costs for low value injury claims as intended, it may be that they also push up the total number of claims and increase the cost of the non-injury aspects of the claim as claimant solicitors look at ways of replacing lost income.

What’s not in doubt as a driver of claims costs however, are the increases in parts and labour costs which are escalating the cost of vehicle repair, while supply chain issues whether it’s car paint or computer chips are also proving troublesome.

Driver shortage

Repairing vehicles hasn’t been the only operational hurdle for operators either with driver shortages post-Brexit proving a challenge over 2021. Given the recruitment drive there are – and will be – many more inexperienced and younger drivers on the books and some insurers have been reluctant to cover them. This won’t be an issue for the large hauliers but it will be for many of the independent, family-owned type hauliers whose insurance may not allow inexperienced and/or younger drivers. Although the problem has seemed to ease recently, the message for businesses looking for drivers is the need to have a robust recruitment process in place, together with a strong, disciplined vetting procedure, and thorough interviewing and training procedures.

Electric take off?

Another motor development that has been making lots of (humming!) noise in the private motor market is the adoption of electric vehicles (EVs), but in the commercial space it seems the country is still a way off from mass take-up with EVs representing a small proportion of the overall motor fleet.

Low adoption probably reflects the absence of a comprehensive national infrastructure for using and charging EVs, while there isn’t yet an established repair network. That perhaps gives insurers some time to get to grips with the inevitable growth in the use of EVs by commercial users: pricing is, at the moment, uncompetitive with insurers not as proactive as they might be in how they need to price and manage the risk. They certainly have challenges around the increased repair costs for EVs but whoever can be first in developing a good commercial product for insuring commercial EVs will surely gain a strong competitive advantage.

Looking for a new gig

For the short term, the commercial motor insurance market in 2022 will continue to be shaped by the issues around claims inflation and social factors such as driver shortages, but it will be interesting to see how the new breed of insurtechs tap into the growing demand of the gig economy and new start-ups keen to challenge the traditional ways of running and insuring a business.



Michael O’Mahoney, Broking Director - Motor

Mark Seels, Technical Consultant - Motor