What are the top challenges facing motor insurance customers? (2024)

And how do these differ from commercial to personal lines insurance?

What are the top challenges facing motor insurance customers? (1)

By Mia Wallace

What are the main pressures facing motor insurance customers and do those pressures differ in commercial lines insurance and personal lines insurance? This was one of the questions addressed by Nick Kelsall (pictured left), head of claims for Allianz Commercial, and Michael Golding (pictured right), motor network manager for LV=, in a recent interview during which the two specialists shared what they’re seeing impact the market.

What’s impacting the motor insurance sector?

Golding noted that it’s impossible to discuss the motor insurance sector of today without touching on the sharp increase in inflationary costs which has driven up repair costs. There are several factors behind that, he said, and it’s partly driven by wage increases for technicians and the increased general cost of running body shops. Other factors, including the increased cost of paint, are also filtering down from chemical companies to manufacturers.

“From an underwriting point of view, it’s all about getting the pricing right,” he said. “We’ve obviously seen an expansion in in-vehicle technology which has a link in with that pricing factor and with repair costs.

“Then we’ve got the evolving Chinese market for electric vehicles which is coming through. They’re having to play catch-up because a lot of these new vehicles have challenges around parts and supply and repair methods. And that’s just some of the key pressures facing motor insurance products.”

Contextualising the question, Kelsall reflected back on the hard market conditions that emerged in the commercial lines motor insurance sector post-COVID. That was a period that saw ‘the Great Resignation’, he said, and a massive shortage of skill sets within UK plc as people looked to change their careers and working patterns. This led to a shortage of labour in the insurance sector, and also on the repair side of the market.

Indeed from there it was out of the frying pan and into the fire when the war in Ukraine started, he said, driving up the cost of everything– from people’s salaries, to recovery vehicles, to storage costs, to parts costs, to the cost of replacement vehicles while an insured’s vehicle is being repaired. These conditions didn’t just impact the cost of the car, they impacted every element in the motor product value chain.

“In a really competitive market, where we're all trying to grow and survive, we needed to come up with some quite innovative solutions to try and mitigate that cost for our customers,” he said. “We didn’t want to pass those costs on to our customers, because we wanted to remain competitive.

“There have been a lot of factors at play, including the rise in the cost of energy. Here at Allianz Commercial, we actually paid for our repair networks’ increased electricity which goes to show there have been some positive impacts from these challenges in terms of how we’ve been able to support our customers through this period.”

Sustainability in motor insurance

The work Allianz Commercial and LV= have been able to do for their customers and partners around sustainability has offered a clear example of this positivity in action.

LV= was one of the early adopters of PAS 2060 – a carbon neutral status – when Golding started work on implementing the methodology in late 2020, with the company welcoming its first PAS 2060-compliant site at the end of 2020. Since then, it has gone from strength to strength, he said, and he’s seen the wider market move to more widely embrace the standard as well.

“What this has done is get people starting to think about sustainability and about the CO2 in what they’re doing,” he said. “And that’s linked to thinking about how they can actually reduce their CO2 emissions and also become more efficient as well. The piece Nick mentioned about energy costs has been key to this because… being able to reduce energy costs can actually have quite a dramatic impact on the financials of repairers.”

The team at LV= has thrown its weight behind supporting and signposting energy-efficient repair methods that will reduce the environmental impact of motor repairs while creating efficiencies and cost savings for their partners. Alongside that, Golding said, they’re looking at science-based targets as a way to start measuring CO2, in line with the government's environmental pledge.

“That’s about how we start evaluating body shops and thinking even further into the future about how far we are from carbon-zero repair,” he said. “That’s still someway in the future but we’ve started looking at these targets and how we can work towards them. Looking across the market, we’re now starting to see more of an emergence of green parts or recycled parts. If you go back pre-COVID, ‘green parts’ was almost a swear world in the repair world!

“But there’s more understanding of what that means now and it’s becoming more common. The market is really still in its infancy and it’s still just a small percentage, but we’re really trying to promote green parts and support the repair networks to have better utilisation of green and recycled parts.”

It’s a similar story in the commercial lines world, Kelsall said, though he believes the commercial motor insurance market is facing quite a significant uphill journey when it comes to fully embracing sustainability. It’s especially complicated because, as a commercial vehicle carrier, when the vehicle arrives at the repair centre, the person dropping it off does not necessarily have the authority to enable the repair to fit a green part.

Where Allianz Commercial has really gone out on a limb, he said, is by focusing its efforts on where and how it brings people into its networks. The business has launched two major initiatives – an excess reduction for anyone who uses Allianz’s network and an update to its policy wording, making the usage of green parts an opt-out rather than opt-in consideration. The latter has seen a big uptick in the fitting and usage of green parts, mainly through the insurer’s approved repair network.

“We fit 17% more green parts in 2023 than 2022,” he said. “Now that started from quite a low threshold with less than 10% of all parts fitted being green. But, as Michael said, we’re on a journey here of educating our customers and our brokers on what a green part actually is – and that it has nothing to do with the safety or longevity of the vehicle. They’re all cosmetic parts and though they are second-hand, it’s important to understand that they come with the same warranty as a new part.”

Supporting clients in meeting their own sustainability targets

What’s really helping to move the dial when it comes to commercial customers, he said, is that these corporations often have their own sustainability targets and ESG obligations. And particularly at the moment, with so much competition for talent, larger corporations are keen to be recognised as ESG-friendly employers, which is why having a great sustainability agenda is so important.

“We at Allianz are looking to partner with our customers and support them in sending out that message,” he said. “We’ll gather the data they need on the use of green parts and pass that to our repair networks. We’re doing a lot of work around that and again, it is a journey - but you can see the progress being made. I do a lot of presentations for broker forums, and I was expecting to have to go into battle on a lot of this. But instead, I’ve been very pleasantly surprised by how receptive the industry is now to green parts.”

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As an expert in the field of insurance, particularly motor insurance, I bring to the table a wealth of knowledge and experience that spans various aspects of the industry. My expertise is grounded in a solid understanding of the intricate dynamics within the insurance market, ranging from underwriting challenges to market trends and sustainability initiatives.

The article by Mia Wallace delves into the pressures facing motor insurance customers, differentiating between commercial lines insurance and personal lines insurance. Let's break down the key concepts mentioned in the article:

  1. Inflationary Costs and Repair Challenges:

    • Motor insurance is impacted by a sharp increase in inflationary costs, leading to a rise in repair expenses.
    • Factors contributing to this include wage increases for technicians, general running costs for body shops, and increased costs for materials like paint.
    • In-vehicle technology expansion is influencing pricing and repair costs.
    • Challenges in the evolving Chinese market for electric vehicles, particularly related to parts, supply, and repair methods.
  2. Hard Market Conditions in Commercial Lines Post-COVID:

    • The article highlights the "Great Resignation" post-COVID, resulting in a shortage of skill sets in the UK insurance sector.
    • The war in Ukraine further intensified market challenges, affecting labor shortage, recovery vehicles, storage costs, parts costs, and the cost of replacement vehicles.
  3. Innovative Solutions for Cost Mitigation:

    • Insurance providers, like Allianz Commercial, sought innovative solutions to mitigate increased costs without passing them on to customers.
    • Factors such as the rise in energy costs were addressed by supporting repair networks with increased electricity expenses.
  4. Sustainability Initiatives in Motor Insurance:

    • LV= and Allianz Commercial have embraced sustainability in motor insurance, with LV= adopting PAS 2060 carbon neutral status.
    • The focus is on reducing CO2 emissions, evaluating body shops based on science-based targets, and promoting energy-efficient repair methods.
    • The emergence of "green parts" or recycled parts is encouraged for environmental impact reduction.
  5. Challenges in Commercial Lines' Sustainability Adoption:

    • Commercial motor insurance faces challenges in fully embracing sustainability, particularly due to complexities in authorizing repairs for commercial vehicles.
    • Allianz Commercial has introduced initiatives, including an excess reduction for network users and policy updates making the use of green parts an opt-out consideration.
  6. Corporate Sustainability Targets and ESG Obligations:

    • Larger corporations with their own sustainability targets and ESG obligations are driving the adoption of green parts in commercial motor insurance.
    • Companies like Allianz are partnering with clients to support their sustainability agendas and provide data on the use of green parts.

In conclusion, the article provides a comprehensive overview of the challenges, innovations, and sustainability efforts in the motor insurance sector, emphasizing the differences between commercial and personal lines insurance. As an expert, I recognize the importance of these factors in shaping the evolving landscape of the insurance industry.

What are the top challenges facing motor insurance customers? (2024)
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