Salvage & Repairs: Are We Stuck in The Inflation Fast Lane?

It’s been a tough year for every company involved in Motor claims. From large insurer to niche broker, recovery firm, to salvage specialist, everyone has felt the impact of rocketing fuel, energy costs and labour rates. Plus the well documented supply chain issues caused by chip shortages and the Ukraine conflict.

Insurance Edge takes the temperature as claims inflation becomes the defining trend of the year.

TOGETHER IN ELECTRIC DREAMS?

Let’s look at how the transfer from internal combustion engined (ICE) vehicles, to hybrid and pure battery powered cars is going.

The big problem as regards claims is often to do with the sheer weight of battery cars. As Jane Pocock, MD of Copart UK noted earlier in 2022,

“Some electric SUVs weight three tonnes of more. That has a knock-on effect as regards damage to other vehicles or infrastructure in a collision, plus the impact on pedestrians too. The we have the recovery challenge, which involves larger tow trucks, stronger flat-beds and the managing the fire risks during storage.”

Meanwhile Russell Harrison, Divisional Head, Markerstudy, is thinking about the ongoing fire risks, which are going to increase as the UK vehicle parc switches from ICE to battery pack;

“We’re all still trying to get to heart of the risks associated with EVs. The industry is cooperating on the issue, insurers are talking to each other – the best thing is to pool data where we can to come up with the best solution for the customer.

There are about 450 different makes and models of EV, each with nuanced challenges. Take batteries for example – there’s a lot of discussion about high replacement costs and the impact that could have on the viability of repairs, and also about potential safety issues. In fact, while there may be some vehicles with certain higher aspects of risk than others, the battery is only one component and over time that will become less of an issue. As the market matures there’ll be more of a second life for component parts and that will help reduce costs.

It’s early days to talk about claims trends, but one key differentiator we’re seeing for EVs  compared with traditional vehicles relates to speed, both forwards and backwards. Acceleration is much quicker in EVs, and it can take people by surprise – they put the car in reverse and suddenly they’ve hit the garage door. So it’s generally slow speed incidents rather than injuries, but costs can be higher because of the expensive technology in EVs. There are dramatic stories about battery fires but there’s actually no major difference in frequency compared with petrol and diesel vehicles.”

REPAIR NETWORK PROBLEMS

After the impact of Covid lockdowns the UK car repair network had to cope with staff, and some business owners, deciding to exit the industry as mileage dropped and the number of incidents fell. Then came the sudden rise in used car values in 2021, as supply chain issues affected both new car production and repair of existing models.

This year we have all seen huge price inflation and energy costs are a particular headache for repair workshops, due to the light, power tool usage and heat required in that environment. The UK government recently promised to cap energy costs for business, but it’s unclear how this will actually translate into hard cash.

Commenting on Government’s plan to help businesses with their energy costs through the next six months Chris Weeks, Executive Director of the National Body Repair Association (NBRA) said:

“We are pleased to see the Government taking action to support business with the increasing energy costs prices. The announcement was much needed and it will give relief to our members that are facing utility bills that have risen by more than 250% in the past year. However, we are still extremely worried for our members, who will still need support after the 6 months’ timeframe.

The nature of our work means that we are high users of electricity and gas. We estimate that the average body shop uses 160,000kWh/year of electricity and 400,000 kWh/year of gas, which equates to bills of £65k total in the year to June 2022. On August 30, NBRA wrote to the  Chancellor of the Exchequer and many other Government departments urging government support for vehicle repairers.

Chris Weeks continued, “Body shops play a vital role for the automotive industry and are crucial to our communities, therefore financial support from Government is imperative to keep them in business.”

LONG TERM OUTLOOK

Long term, the challenge for insurers in the car sector may well be forging close partnerships with automotive parts specialists and repair networks, so that existing cars can be recovered, repaired, or written off and disposed of quickly. By settling live claims faster, insurers can manage the claims ratio of settlements vs policyholders per month. In the end, that is arguably the key factor in deciding whether a particular policy book turns a profit, or posts a loss.

That partnership may involve taking a financial stake, especially regarding pasrts supply. Just as UK energy price volatility is ultimately caused by reliance on overseas suppliers, the same conclusion can be drawn on car parts. We have very little manufacturing left in the UK as regards spare parts. That situation must change if insurers are to avoid long term storage costs and credit hire bills for disgrintled policyholders.

SUPPLY CHAIN PROBLEMS NEED A GREEN SOLUTION

Jane Pocock, CEO of Copart UK & Ireland noted, green parts can ease the supply chain bottlenecks and they’re good for the planet;
“The number of vehicles going through the recycling and salvage market has increased as a result of motor claims inflation. Copart handles around 500,000 vehicles each year on behalf of insurers and delivers significant sale returns, thanks to our global auction technology and expansive buyer network. We have also worked extensively with insurers to drive down claims inflation to fast-track the processes for vehicle recovery, inspection, sale, and delivery, in order to optimise claims settlement.
That process is supported by our owned and managed UK-wide network of Operation Centres, set up to handle all vehicles including the growing car parc of EVs. Making sure the salvage value and/or repair costs are assessed quickly, to give insurers the chance to make quick decisions, benefits the policyholder and helps to reduce claims inflation.
The bottleneck in the motor supply chain is unlikely to reduce in the short term, so we expect to see higher than normal prices being achieved for recycled vehicles, and an increasing emphasis on using green parts for repairs.”
In many ways the insurance sector can be a trailblazer for the recycling of various components and recovering rare earth materials. Not just in cars, where many items are in `as new’ condition behind the dashboard, or behind outer body panels, but in homes, gadgets and things like e-scooters too. While safety critical items should always be replaced with new, there is a chance now to create a green parts infrastructure within the insurance claims eco-system.
TRACKING THE TRENDS
Trend Tracker monitors repair market trends, including how inflation directly relates to the repair costs and decisions being made in the market. The data firm produce a monthly briefing for subscribers and, at time of writing, are compiling a bi-annual comprehensive market report due out in October. In the report, Trend Tracker consider a number of factors impacting the salvage and repair sectors in detail. Headlines ahead of the report include the following:

Repair costs are rising at a rapid rate, each month being the highest on record – but are now not keeping pace with inflation leading to dissatisfied repairers and pressure on insurers and MGAs to increase rates further. Driven mostly by the energy cost issue but supported by escalating overheads generally.

Whilst a record high for repair cost, there is a record low number of bodyshops since tracked back in 2003, with financial and investment pressures increasing and Insurers/MGAs looking for the ‘correct capacity’ surrounded by ESG, standards and service quality needs – limiting the market they use further.

Insurers are now “better” at identifying and routing potential total loss vehicles from FNOL, but this has proven more difficult with used car prices holding at high levels as a result of the continued low new car production. This is leaving repairers with a limited number of courtesy cars and decisions on significant repairs that could be undertaken on some vehicles (borderline total loss) but with the worries of securing parts (eg. Trend Tracker report on the number of repairs missing at least one part) or having a courtesy car available for the duration.

 

 

About alastair walker 9633 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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