Rising Car Values: Repair vs Salvage Is Getting Trickier

The last year or so has seen two trends emerge in the motor sector; global car parts supply shortages, plus the rapid acceleration of the Net Zero agenda. Add in a dollop of furlough cash and some bounceback loans and what do you have? Rising demand for clean, low miles, used cars. Brits have been on a used car buying spree since lockdown became a way of life, which has driven secondhand vehicle prices up by 55% in some cases.

Now that means the equation which underpins so many car insurance claims has changed slightly. The crux of matter is still assessing the resale value of the salvaged vehicle against the likely claims costs. But it isn’t just repairs. Factor in storage fees, credit hire costs, legal expenses, lost earnings, two location transport/recovery on some complex hybrids or EVs etc. So if the asset itself has increased in value then that dynamic shifts a bit, but by how much does that matter in the overall scheme of things?

IE also wanted to know how the costs of repairing and recalibrating ADAS systems was affecting the motor claims sector. As we covered in a previous feature, even something like simple windscreen replacment can now involve a great deal of testing and calibration of systems before a repaired car is handed back to the customer.

THE REPAIRER VIEW

Jim Loughran, CEO at e2e Total Loss Vehicle Management, offered these thoughts;

“e2e Total Loss Vehicle Management [e2e] is seeing the highest auction returns on salvage vehicles, reflecting rising car values. This can be directly linked to supply and demand with order book delays on new cars, rapid turnover of used cars, concerns around parts supply, both Original Equipment Manufacturer [OEM] and after market, and continued economic uncertainty. 

Whilst insurers are benefiting from strong salvage returns, rising car values also represent opportunities for them to avoid total loss claims – where previously repair may have been uneconomically viable.  This is especially true when reclaimed parts are factored into the repair process offering savings of typically 70% on new parts.  Delays in new parts supply can also lead to an extended claim life cycle and increased credit hire costs.  Total loss claims see the insurer lose their customer.”

That is a very good point to bear in mind, a write-off means you have lost the customer and there’s no guarantee that once the policyholder has a new vehicle, or lease agreement, they will automatically come back to you for cover.  Jim also notes;

“The ability to keep the customer on the road improves customer experience, boosts reputation and supports customer retention, avoiding  customer acquisition costs.  We support our insurer clients in avoiding total loss claims through the supply of quality graded, warranty assured reclaimed parts; with over 5 million parts in stock, e2e holds the largest inventory of reclaimed parts in the industry.” 

VEHICLE HISTORY IS MORPHING INTO CAR PASSPORTS

Here’s another thing to consider; the service and repair record, especially on ADAS equipped cars, is becoming a crucial component of the quote/renewal process too.

Martyn Mathews, (pictured) director of personal and commercial lines at LexisNexis Risk Solutions Insurance said:

“Insurance providers can keep pace with the dramatic changes in used car values through recent innovations in vehicle data delivered directly into the insurance quote process via LexisNexis® Informed Quotes. When a quote is being calculated, they can factor for both the current and future valuation of that individual vehicle based on a wide range of vehicle advertisement and sales data from Cazoo Data Services. This same valuation data is used by the Financial Ombudsman Service when settling vehicle claims disputes.

Beyond valuation, MOT enrichment data – such as previous test dates, passes or fails, advisories, and any overall trends during the current ownership period can build a much more accurate and comprehensive view of the risk for pricing.”

So having that historical data is another factor to balance against the asset value. For example, demand for used Mercedes GLA models may have increased, by say 30% on average, but is the damaged model in question, with a pre-accident history of MoT advisories worth anything like the prices being asked online by traders? In this regard, modern cars are becoming data passport holders and insurers need to unlock that data before making a decision on repair vs salvage.

Martyn continues;

“Vehicle data also helps overcome the reliance on customer self-declarations, helping to ensure that answers to questions such as how long the car has been owned, current mileage and estimated mileage for the duration of the policy, are accurate. The picture of insurance risk becomes even clearer when vehicle data is viewed alongside public and LexisNexis Risk Solutions, Insurance proprietary data related to the person. This would include their motor policy history, such as prior motor insurance cancellations, and information on the presence and performance of Advanced Driver Assistance Systems (ADAS) through LexisNexis® Vehicle Build.

The next exciting step is bringing in highly granular claims data to add to the picture at point of quote and claim. We’re already well down that road for the U.K. market leveraging our experience building and hosting this database in the U.S.”

ARE INSURERS FULLY UTILISING THE GREEN PARTS SUPPLY CHAIN?

Green spares are a controversial issue, for consumers and trade repair shops alike. Driver and passenger safety has to come first, but a system of recycling car parts has be developed long term. Here’s why, governments and large companies alike all agree that ESG matters, product miles and mining rare earth metals, are all part of the problem. You can’t argue that every replacement car part should be created brand new in a factory, but we need to reduce our carbon emissions too.
IE believes that a UK/EU standard on used parts recovery and retro-fitting needs to be established, with authorised repair centres meeting standards on training staff, modern tools, data handling, waste disposal etc. If you build an eco-system for used/green parts and make it transparent, then the general public will support it.
Commenting on rising car values, Jane Pocock, Copart MD for UK and Ireland, said:
“The steep rise in used car values has been caused by a number of factors; lack of supply of new vehicles caused by the pandemic and Brexit, and related issues such as the world-wide chip shortage. Higher repair costs for vehicles loaded with technology means it is increasingly uneconomic for insurers to repair them, and higher auction prices have improved their returns on written off vehicles.
“Supply shortages and rising values means it has become economic for insurers to recycle vehicles, and it is better for customers too. Given the lead times for repairs are lengthy, recycling through Copart’s online auction reduces the claim lifecycle and gets customers a much quicker settlement for their claim. We are now handling 500,000 vehicles annually and our new recycling programme means that we are also actively recycling green parts into the supply chain, where demand from insurers is increasing as ESG issues remain a key focus. We don’t expect the current situation to return to normal for a few more months yet.
AX
 

Mick Walker, Repair Network and Engineering Manager, at AX, added this;

“Parts back order or delays have been an issue for a while and this not going to be fixed any day soon. Electronic components are being affected by the worldwide chip shortage (expected to extend into 2023), particularly in Hybrid and EV vehicles where the chip count is higher and repair costs are comparably higher.

I am not aware of any centralised monitoring of delayed parts; however, I am certain Supply Chain Managers are monitoring their own and diverting cases where the delay is outweighed by a better return on salvage, or drastically affects the customer journey. Customers want to work with providers who are driving the use of Green Parts, and adoption is key where repairers want to retain customers.

Recent rises in values due to a lack of new vehicles being available has caused a reduction in total losses. More vehicles are being repaired, therefore causing issues with repairer capacity, extending repair periods, which is already being compounded by parts availability issues.”

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About alastair walker 10158 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

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