ILC ARTICLE

What the data tells us

29th November 2022

Motor insurers should brace themselves for increasingly challenging times as capacity and profitability are both expected to shrink in the coming months.

Repair capacity is already an issue of great concern for many providers, but as that continues to diminish insurers will have to pay more for a reliable service while also supporting their networks in other ways.
Speaking during a far-reaching panel session – What the Data Tells Us – at October’s ILC Exclusive Motor Claims Conference, Paul Sell, Director of Trend Tracker, warned that the situation will get worse before it gets better.

He revealed that a Trend Tracker survey of bodyshops found that 62% were already operating at capacity, and that’s even before volumes increase during the winter.

Paul said, “For insurers, securing quality capacity is going to be very difficult. Many are now moving from independents to groups, but even this strategy won’t negate the challenge of securing capacity at a price that will support either increasing market share or maintaining what they have.”

Repairers

Of course, the capacity issue is only as acute as it is because of the attrition rate among repairers in recent years. Here too the situation has not bottomed out, with already under-pressure bodyshops braced for rising costs in all areas of their business.

Paul pointed to SMMT figures that reported a £100m uplift in energy costs among its members in the last year, while the NBRA said its members had seen energy bills rise 250% in the same time period.

On top of that repair bills continue to rise – average repairs in September were up £284 on August, which was up £260 on July – as does the cost of skilled staff. Every bodyshop Trend Tracker surveyed said staffing costs had increased in the last year, with 30% saying by more than 21%.

And then there is the shortage of parts, which has contributed to lead time swelling to an average of 60 days. That challenge is likely to remain for a while, with sales of new cars 30% down on pre-pandemic levels (used car values have inflated by 29% in parallel). Surging EV sales may offer some respite, with 250,000 registered this year alone, but these too bring cash flow problems EV repairs 24% more expensive than ICE counterparts since 2019.

Paul said, “Almost everything has gone up, and now interest rates are expected to go up too. This inflationary trend will continue for quite some time, so I feel there is more way to go in terms of costs.”

Change

Offering insights during the session alongside Paul was Karen Houseago, Head of Insurance, Consumer Intelligence; Kajal Vakas, Senior Vertical Market Manager, Claims, LexisNexis Risk Solutions; and Matt Scott, Co-founder, Insurance DataLab, who said that capacity was just one factor putting the industry, and insurers especially, under intense strain.

He revealed that driving miles have fallen every year since 2002, a trend which accelerated in 2020 and 2021 and has not recovered in 2022.

This has seen an increase in popularity for pay-as-you-drive polices, which are typically cheaper than traditional policies.

Meanwhile, the cost-of-living crisis has also turned consumers on to cheaper, no-frills policies, with many two-car households selling their second vehicle to cut costs.

Thrown in the melting pot with Brexit, supply chain disruption, political upheaval and the war in Ukraine, insurers are facing an uncertain future.

Matt said, “Over the last five years, 2019 was the only year that motor insurers made an aggregate loss (101% combined operating ratio). Every other year their COR has been around 97%, but faced with so much disruption we expect COR to approach 114% in the near future. This will also have an impact on the rest of the value chain – and of course on consumers.”

Despite these financial headwinds, the service insurers offer their customers is under greater scrutiny now than ever before – both from regulators and the customers themselves.

Customers

The FCA updated its General Insurance Pricing Practices last year to ensure the insurance sector delivers Fair Value to policyholders, and next summer it will introduce stringent Consumer Duty regulations, compliance to which will mean being able to prove that customer satisfaction is at the core of every single process and product. Organisations found wanting in this regard may incur strict financial penalties.

But to deliver a service customers are satisfied with means first understanding what they want, and that is changing.#

Karen explained that since the FCA introduced new regulations to prevent insurers charging more for renewed policies than new ones, switching providers has fallen to its lowest level in 10 years. This, she believes, means that customer experience is even more critical than ever – and for legacy providers it will only become more so as the challenge from digital rivals, who are able to provide quick and convenient service, increases.

A Consumer Intelligence survey of 1,000 customers found that 84% described themselves as digital savvy, with 57% saying that digital technology increases efficiencies and 58% saying that it improves the customer experience.

However, this might be slightly misleading.

Consumer Intelligence also carries out monthly surveys of 2,000 customers to better understand trends and behaviour and, apart from revealing that 80% are satisfied with the service they receive from insurers, the survey also proved that the majority of policyholders still want to be able to talk to someone at the point of claim.

Karen said, “Insurance is a promise to the customer that you’ll catch them when they fall. Customers overwhelmingly want to be able to phone people, so when it comes to meeting their expectations during a claim two things will decide if they have a good experience – is there someone on the end of the phone, and is the claim settled quickly.”

Strategy

For insurance leaders then, devising a future strategy is not straightforward, but only by keeping on top of the data can they begin to understand where the industry is heading.

Kajal said, “There has always been new trends and there always will be, and only data will help us identify them and shape our business accordingly. At LexisNexis Risk Solutions we’re always trying to find new ways of injecting data into the claims process to accelerate and enrich it, and provide customers with more options and a better service.

“So, can we use data to improve triage so repairs go down the right route first time, and might that alleviate some of our capacity problems? Does every customer need mobility, and what are the alternatives? Can we use data to free up specialist resources so our experts have more time to do what they’re trained to do?

“We need to think outside the box and be more strategic about how we use data to serve our customers in the way they want, at speed and scale, while also reducing costs and fraud, and winning market share.”

ILC’s Exclusive Motor Claims Conference – headline sponsored by Enterprise Rent-A-Car, and sponsored by EDAM Group and LexisNexis Risk Solutions – took place a Landing Forty Two in London in October.