The Office for National Statistics’ (ONS) annual inflation rate for transport was 9.3% in October 2022, down for a fourth consecutive month from a peak of 15.2% in June 2022.1 The price of second-hand cars dropped for the first time in two years, falling by 0.6% between September and October 2022. As the UK is firmly in recession, car demand may be subsiding as families and businesses grapple with the cost of living crisis.
October’s decrease is in stark contrast to the 4.6% rise in prices between the same months in 2021. Costs rocketed between May and November 2021, primarily due to increased demand following COVID-19, lower levels of stock, and the global semiconductor microchip shortage. Each new car features around 1,500 of these chips – which act as the ‘brain’ of the vehicle – and this shortage is expected to continue well in to 2023.2
Post-pandemic, rising costs of parts, labour and replacement cars have pushed up premiums, and a number of insurers have flagged the issue of motor inflation this year. However, in response to the recent drop in inflation, Aviva said supply chain pressures had started to ease.3
Despite this change in trajectory, the costs involved in having a motor accident are still uncomfortably high, and a number of factors are influencing the risk landscape. The damage caused over the last two years by global supply chain challenges, exacerbated by the war in Ukraine, has restricted the availability of parts, which has, understandably, pushed prices up.
A huge number of car components have been affected by the price hike in global materials. Certain manufacturers and specialist vehicles have felt this particularly keenly, with lead times on some parts reaching 12 months. As most car parts are priced in US dollars, recent currency fluctuations have further added to the price tag. Insurers are looking at innovative solutions to combat this problem, such as the use of “green parts” sourced from written off vehicles.
Delays in repairs have restricted the availability of courtesy cars provided by garages and increased the cost of credit hire for third parties as vehicles take longer to return to the road. These difficulties have also resulted in drivers postponing necessary repairs. More than a third of drivers aged 17 to 24 (37%) have delayed repairing their vehicles in an attempt to cut costs in the face of inflation, according to the 2022 RAC Report on Motoring.4
Repairers are prioritising repair work on un-driveable vehicles over those where the vehicle is still roadworthy and safe. This could have a reputational impact: a vehicle may be unsightly and act as an “anti-advertisement” for a business, but if it is still drivable, repairs could take some time.
Supply chain problems hit new car deliveries too, not only increasing demand for second hand vehicles, but also the cost of claims. Gallagher has also seen an increase in the number of written off vehicles – it can be more cost effective to write off a damaged third party vehicle than pay extended hire car costs while the vehicle awaits repair.
Vehicle thefts have increased as vehicles and parts become more valuable. We have seen a particular increase in the theft of specialist vehicles where availability is especially tight, and this trend will likely continue as the economic outlook deteriorates. ONS October data on crime in the West Midlands showed that incidents of car thefts increased by 25% from June 2021 to June 2022.5
As the technology embedded in vehicles grows in sophistication and complexity, it can also influence pricing. Electric vehicles (EVs) in particular suffer from this trend; a shortfall of qualified technicians and the cost of replacement batteries are the main concerns. However, as EVs become more mainstream, parts should become cheaper and more garages will specialise in their maintenance and repair.
While transports inflation may have dropped, the macro-economic environment is still placing a huge amount of pressure on the motor sector. Risk management and driver training to cut accidents should reduce costs – both insurable and uninsurable – associated with any given incident and protect insurance premiums in the longer term. In the event of a motor claim, it is important to report to your broker at the earliest opportunity – ideally on the same day, because delays could affect your claim and any costs. In the event of a motor claim, it is important to report at the earliest opportunity – ideally at the accident site, because delays could affect your claim and any costs.
