Ultimate magazine theme for WordPress.

Direct Line warns second-hand car price surge is inflating accident claims

0 7

One of Britain’s biggest motor insurers has warned that a surge in the price of second-hand cars is driving up the cost of accident claims, as the fallout from a slowdown in global auto production spreads.

Direct Line said on Tuesday that inflation in costs per claim was running between 3 per cent and 5 per cent above its medium-term expectations, and pinned the blame on the booming second hand car market.

A shortage of semiconductors, which cars rely on for everything from electronic windows to driver assistance systems, has hobbled the production of new vehicles and turbocharged prices in the used car market.

Prices for used cars in the UK have risen for the past 19 months, and in October were up 26 per cent from a year earlier, according to Auto Trader.

The insurance industry is exposed because if a car is written off in an accident, the insurer pays out what the car would cost in the second hand market.

“Prices [for used cars] are several thousand pounds higher than they were this time last year,” said Direct Line chief executive Penny James.

London-listed Direct Line said that it had offset some of the increase by using its own car repair centres to fix damaged cars, but it added that the price of motor insurance across the market as a whole did not reflect the higher cost of claims.

According to the Association of British Insurers, the price of motor insurance has fallen 7 per cent over the past year, and prices are running at the lowest levels since 2016.

“We are pricing [for] inflation, but not everyone is,” said James, adding that the company’s pricing policy had lost it business in the early part of this year, although the situation had improved since June.

Direct Line is not the only insurer to warn about higher used car prices. Rival Sabre said last month that its claims for total loss and theft would be affected.

Insurers are still wrestling with the pandemic’s fallout on their businesses. Although many people have returned to their usual places of work, Direct Line said over the summer that commuting levels were lower than they had been before Covid-19, leading to fewer rush hour “bumps” in traffic.

Overall claims costs are likely to be below the insurer’s target range this year, largely because of the winter lockdown. Direct Line said on Tuesday that the combined ratio — a measure of claims and costs as a proportion of premiums — would be 90 to 92 per cent in 2021, better than the target range of 93 to 95 per cent.

Direct Line shares fell 3 per cent on Tuesday and are broadly flat over the past year despite a series of share buybacks.

“DLG continues to see the benefits of pricing sophistication and digitalisation with further benefits scheduled to come through over the next 18 months,” noted Panmure Gordon analyst Ming Zhu. “We continue to take the view that motor pricing has stabilised and likely to improve from 2022.”

Leave A Reply

Your email address will not be published.