Predictions: Supply Chain Issues Are Just Getting Started

IE loves predictions. We recently took a look at some of the growth opportunities that are heading our way by 2030, as insurance becomes on-demand, private healthcare replaces the NHS, co-living and social housing replaces Commercial building space, then there’s e-scooters, EVs, pedal powered delivery for the last mile and so on.

All great stuff, but there are always a few black swans on the horizon and if we take a look at the tea leaves, we can see supply chain issues creating problems for insurers and brokers.

CAR MARKET

Toyota’s production is down about 40% globally, Audi and VW extended the summer break, Chevrolet cust back EV production in the USA and Renault announced a 17% reduction back in 2020. That drives up prices for pre-owned cars in fact, for the first time in UK history, dealers are offering owners of in-demand cars MORE than the new price they paid 18-24 months ago.

Just think about that for a second. How are you going to settle a write-off claim if you cannot source a new vehicle? The only way out is a cash offer, but even offering the 2021 brand new full list price, less the excess, isn’t going to allow the policyholder to buy a 2 year old example of their 10K miles, fully-specced up, sports car. That failure to replace the car with what the customer perceives is a fair value cash settlement, is going to create a great deal of bad feeling amongst policyholders.

Then there’s the spare parts needed to fix repairable cars. You will struggle to buy them, or rather the repair network will, because manufacturers are not making so many spares since they’ve cut production. Spares that feature chips built in may be impossible to source, which means you will have to asset strip older cars – can the insurance industry get away with that? Think of the PR downside involved.

One thing IS certain; demand will drive salvage prices upwards like a Space X rocket this winter.

We predict it, you have to plan for it. Sorry, that’s the deal.

CHIP SHORTAGE COULD PROMPT RE-PRICING ON GADGET COVER

Many car makers are scaling back production due to chip shortages and cars are all comms platforms now, so yeah, it’s a big thing. But let’s think ahead on the gadget insurance front. How can you offer like-for-like cover on smartphones and laptops if those items are in short supply?

The chip market for phones and games consoles isn’t the same as the car market, but the general feeling from trade press right now is that cheaper smartphones, laptops and games systems will slowly vanish, as the high end stuff becomes more profitable in an era of higher priced chips.

HOME

The Guardian reported earlier in 2021 regarding the soaring cost of builder’s materials. Paint, copper, wood – everything – has been going up, sometimes by as much as 80%.

Now think that trhough a winter storm season and lots of property damage next February. The housing market is overheated right now, so you will struggle to find builders to carry out rapid repairs, then on top of that problem, the materials to replace flooded basements, kitchens or outbuildings, will be harder to come by.

Again, re-pricing the risk is the most likely scenario.

HEALTHCARE

On the upside, the deliberate rationing of care by the NHS is prompting a huge uptake of private medical insurance schemes. But things like a basic shortage of blood test kits, hospital grade beds, or many other essentials, will all conspire to make pricing healthcare cover a difficult task in 2022.

It isn’t just that demand that will rise higher, so too will consumer expectations as regards rapid diagnosis, consultations and treatments. If insurers are to deliver on their promise to help policyholders avoid the endless bureaucracy, closed GP surgeries and dangerous delays inherent within the NHS, then they must ensure that their supply chains are robust enough to deal with peaks in demand.  As a great deal of medical equipment is actually manufactured in China and distributed by UK based importers and retailers, that won’t be easy.

CULTURAL REVOLUTION IN CHINA

Get set for a bumpy ride next year, because the in the humble opinion of IE mag, the supply chain volatility is just starting to ramp up.

For decades the UK has enjoyed cheap parts and goods from China, plus cheap labour from the EU and elsewhere and it’s pretty obvious that those days are over. China now has a middle class earning comparable wages to those in the UK public sector. Chinese owned brands like MG and Volvo are not selling cheap cars, they leave that game to Renault or GM.

Women in China are being encouraged to have three children not one. That means fewer women in the workplace and an acceptance that a strong family life is actually a good thing. Expect reduced working hours, more leave, a better work-life balance, to become part of Chinese culture.

China is also busy economically colonising Africa and other parts of the globe for the raw materials and arable land there. They are one of the biggest investors in South American lithium extraction for example. Again, that is bound to lead to pressure on the global car supply chain as China begins to effectively set the price of EV battery packs in the future. If you look at how China is playing off Egypt and other countries on the Nile dam projects, you can see that the supply of water – and hydro-electric power – may become a bargaining chip that could be the ultimate supply chain problem for millions of people.

In short, we live during interesting times. It’s going to get very competitive.

 

 

Advertisement

About alastair walker 7107 Articles
20 years experience as a journalist and magazine editor. I'm your contact for press releases, events, news and commercial opportunities at Insurance-Edge.Net

Be the first to comment

Leave a Reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.