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Press Release

Higher severity claims during pandemic drive up costs for UK motor insurers in 2021

December 15, 2021

According to latest data from Claim Metrics, Willis Towers Watson’s claims benchmarking service, claims inflation increased by 6.1% during first half of 2021.
Claims|Insurance Consulting and Technology
Insurer Solutions|InsurTech

The cost of settling claims continues to climb despite driving behaviour changing dramatically during the pandemic.”

Tom Helm
Head of Claims Consulting, Willis Towers Watson

LONDON, December 15, 2021 — Motor claims payout inflation in the UK increased by over 6% during the first six months of 2021, taking the average cost per claim (ACPC) to £5,3801, according to the latest Claim Metrics benchmarking data from Willis Towers Watson. Whilst lockdowns over the period Q2 2020 to Q1 2021 led to a drop in motor claim volumes, including unprecedented lows in some months, the cost of settling claims continued to increase during the pandemic. The H1 2021 figure compares to an inflation rise of 10.8% during the full year 2020.

Motor Claims Inflation

YOY Trends
2019 2020 2021 H1
Average cost per claim (gross)* £4,576 £5,072 £5,380
% Change - All motor claims +9.5% +10.8% +6.1%

Source: Willis Towers Watson Claim Metrics. Figures based on settled claims over £150 and capped at £100k. *Exc. Windscreen claims.

Accidental Damage (AD) has increased at the fastest rate over the last 18 months, with AD claims inflation rising by 8.2% during H1 2021 and by 8.4% in 2020, according to the data from Claim Metrics, which provides deep analysis of claims activity in the personal lines insurance market, benchmarking over £17 billion of motor claims spend and more than 40% of the UK motor market.

Tom Helm, Head of Claims Consulting, Willis Towers Watson, said: “The cost of settling claims continues to climb despite driving behaviour changing dramatically during the pandemic. The second quarter in 2020 saw the greatest impact from lockdown with a substantial change in the types of accidents arising. The proportion of claims that were hit-in-rear accidents fell sharply by seven percentage points, despite previously accounting for about 21% of all UK claims. Meanwhile, cyclist claims, which are typically more costly but low in volume, more than doubled their normal share of the overall claim numbers in the same period.

“Understanding this change in mix of claims types during the lockdowns is important because, whilst overall accident frequency was down, an increase in the proportion of higher-severity claim types, like accidents with cyclists, has been a key driver behind the latest increase in average claims cost. It also means we cannot solely rely on assumptions and patterns of the past to forecast future claims outcomes. Tracking whether this mix fully readjusts in the second half of 2021, as driving levels return to 90% of pre-pandemic levels, will be vital.

The data also shows a wide variance in the rate of claims inflation between UK regions, with a difference of seven percentage points between the fastest and slowest increasing regions, with London leading the way at 9.9%.

Tom Helm said: “Claims inflation has the potential to rise further in 2022 driven by a combination of factors, including widespread supply chain issues affecting many industries such as automotive repairs. With inflationary pressures expected to intensify further due to rising used car prices impacting total loss settlement costs, the impact of the Whiplash Reforms should be closely monitored for early signs of the measures’ ability at least partially to offset this rise in vehicle damage costs.

“Add into the mix the fact that there will be increased volatility of motor premiums in the New Year owing to FCA pricing reforms and that remote working continues to impact claims patterns, the trading environment will remain fraught with uncertainties for insurers. Increasing customer expectations, spurred by the rise of digital-first competitors, continue to disrupt the market, which means efficiency and improving claims handling accuracy will prove decisive in such conditions.”

About Claim Metrics

The Claim Metrics service is supported by Willis Towers Watson’s Insurance Consulting and Technology team, which provides a powerful combination of advisory services, integrated with leading-edge technology solutions and software, including our market-leading business intelligence software, underpinned by unparalleled analytical capabilities and infrastructure.

We have more than 370 Technology colleagues who can potentially provide direct support, including software architects, developers, quality assurance, project management and subject matter experts. This is part of a software development community of over 1,000 Willis Towers Watson software professionals.

Claim Metrics data is based on claims settling between £150 (£500 PI) and £100,000, excluding windscreen claims. Lower values are removed to avoid fees pulling down averages and the £100,000 cap removes the volatility of larger claims.

About Insurance Consulting And Technology

Willis Towers Watson’s Insurance Consulting and Technology business has over 1,200 colleagues operating in 35 markets worldwide. It is a leading provider of advice, solutions and software – primarily to the insurance industry. Its consulting services help clients manage risk and capital, improve business performance and create competitive advantage – by focusing on financial and regulatory reporting, enterprise risk and capital management, M&A and corporate restructuring, products, pricing, business management and strategy.

About Willis Towers Watson

Willis Towers Watson (NASDAQ: WLTW) is a leading global advisory, broking and solutions company that helps clients around the world turn risk into a path for growth. With roots dating to 1828, Willis Towers Watson has 45,000 employees serving in more than 140 countries and markets. We design and deliver solutions that manage risk, optimise benefits, cultivate talent, and expand the power of capital to protect and strengthen institutions and individuals. Our unique perspective allows us to see the critical intersections between talent, assets and ideas — the dynamic formula that drives business performance. Together, we unlock potential.

1 Claim Metrics data is based on claims between £150 (£500 PI) and £100,000, excluding windscreen claims.

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