Over the past few years, we’ve witnessed first hand the significant changes in the insurance landscape. The rise in insurance premiums has been a topic of much discussion, and it’s essential to understand the underlying factors driving these increases.
One of the main factors, particularly within the motor insurance market, is the rising cost of claims.
Difficulty in obtaining replacement parts, caused by global supply chain disruptions, exacerbated by the Covid-19 pandemic, the war in Ukraine, and Brexit, have led to significant delays and shortages in essential vehicle repair parts.
Vehicle repairs are not only delayed but have also become more expensive. The cost of repairs has risen substantially driven mainly by these longer repair times, resulting in an increase in hire car costs. A significant rise in overheads for car garages including their increasing utility bills has also contributed.
In Northern Ireland, we have a higher percentage of rural roads compared to the rest of the UK. Because of this, we see significantly more road traffic collisions here, resulting in a higher number of claims than in GB.
The integration of advanced technology in modern vehicles, specifically electric vehicles, adds another layer of complexity. While these innovations offer significant efficiency and safety benefits, they come with higher maintenance and repair costs. When accidents occur, the cost of repairs or replacement parts increases the average cost of insurance claims, contributing to the rise in premiums.
These factors have contributed to the average car insurance claim cost in Northern Ireland being significantly higher than in GB, resulting in many insurance companies here operating at a loss. This financial strain and added regulatory pressures have forced some insurers out of the market, reducing competition and compelling remaining firms to raise premiums to cover claim costs.
Home and buildings insurance have not been spared either. Climate uncertainty is pushing rates up with bad weather resulting in more pay-outs, while the cost of rebuilding and extending homes has soared due to increased material costs. The cost of alternative accommodation due to unforeseen circumstances, such as a building fire, has also spiralled.
This cause-and-effect chain not only impacts individuals but businesses too. Entire sectors, such as transport and logistics, are being hit with higher premiums on their vehicle fleets and premises, meaning operational sustainability and growth are at stake.
The Northern Ireland Ogden discount rate also has an important part to play when it comes to setting insurance premium rates. This rate is a calculation used to determine how much money insurance companies should pay as compensation to people who have suffered injuries. A higher rate here than in the rest of the UK has led to higher lump-sum payments to claimants, which insurers must accommodate in their pricing.
Claims inflation also plays a role, impacting the cost of materials, repairs, and labour due to wage increases. Extreme caution therefore needs to be taken to ensure customers are not under-insured, and policies financially protect the updated value of their assets.
Although we are starting to see signs of car insurance premiums levelling off with the rate of increase starting to slow down, customers will still notice an increase on their policies this year compared to last, and home insurance is still going to be a challenge throughout 2024.
Jennifer McKelvey is personal lines director at Northern Ireland’s largest insurance broker AbbeyAutoline
