10 October 2023

New car registrations: A driver of motor claims inflation

By Road Runner

In recent years, the insurance industry has been heavily impacted by claims inflation and motor insurance is no exception to this. In 2021, motor claims pay out inflation increased by more than six percent, taking the average cost per claim to £5,3491.

As a result of the pandemic, the UK’s new car market declined significantly, which saw an increase in the value of second-hand vehicles. In June 2022, UK new car registrations fell by 24.3 percent – which was the weakest performance since 19962. There was some sign of stabilisation in August, growing by 1.2 percent to 68,858 units. However, this was still 35.3 percent on the figures from a pre-pandemic3 time.

One of the most significant reasons leading to the decline has been the issues with supply chain. This has arising from the ongoing conflict in Ukraine and the global shortage of semiconductor chips. This is subsequently leading to delays in returning vehicles to customers and driving up vehicle hire costs. Want to know more about this? See our previous article all about supply chain issues and the impact on your insurance.

The issue is not exclusively a result of the war, though. The economic climate along with hybrid working patterns have also affected demand for new vehicles.

How does this impact my insurance?

The longer waiting times for new vehicles has in turn increased demand for second-hand vehicles. As a result of this, some commercial vehicles are currently being sold for more than their initial purchase price, which therefore pushes up total settlement costs.

The average “key to key” time has increased from 11 days to 14 days since the start of 2022. Additionally, the average cycle time (from First Notification of Loss (FNOL) to when the customer receives their keys back) increased by 11 days in the first eight months of the year4.

At Howden, we recognise that there’s a wide variety of factors currently impacting claims inflation. Many of these factors are out of our control, but we’re committed to supporting you through it all. If you have any questions about your insurance with us, contact us today.