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The last thing you want to experience is a substantial increase in the cost of your car insurance or your Caravan Cover.
Especially given that overall inflation as measured by the Consumer Prices Index (CPI) is currently running at over 8% and that pressure on household incomes is coming from many different angles. Unfortunately many car and caravan owners have seen such increases.
We sought the opinion of Paul Dilley, Commercial Director at our partner broker Devitt Insurance Services, for his take on how the motor vehicle industry got to where it is now and what might occur in the future.
"A number of factors have come together over the last two years or so to lead to the current market situation, in which the Association of British Insurers (ABI) are reporting average annual increases of over 16% for private motor insurance premiums.
Following a prolonged period of relative price stability, driven by low inflation and a competitive market, price increases started to accelerate in 2022, particularly following Russia's invasion of Ukraine. This added to existing inflationary pressures as a result of the bounce back from the Covid pandemic when 'accidental' savings built up during lockdown flowed back into the economy at a time when there were still shortages of vehicles, parts and even labour, as businesses struggled to get back up to speed post-pandemic and meet the extra demand. That meant prices went up.
The combined effect of these two abnormal 'shocks' has led to some highly unusual spikes in raw materials prices and labour costs. For example, some of the increasing cost pressures cited by some ABI members include:
All of the above factors apply equally and in some cases more so to the leisure vehicle sector. The Caravan and Motorhome Club has seen similar increases, with the average claim cost for a stolen caravan increasing by more than 20% in 2021. Similarly, the average claim for damage increased by 25% due to labour, energy and material costs inflation.
From an insurance point of view, when underwriters were determining their pricing strategies for 2022/23 it was very hard (and in the case of Ukraine arguably impossible) to foresee these sudden changes and therefore expectations of inflation may have been much lower for some.
A sudden and unexpected spike in inflation is especially challenging for insurers, since they will pay future claims out of premium pots that they have built up during the previous period.
It is no coincidence that a number of insurers have reported very poor results in motor insurance for 2022 because the associated bill for claims was much higher than they anticipated. That in turn means that this year, in some cases, we will see a 'double whammy' effect whereby rate increases are introduced in order to both make up for any shortfall from previous periods, whilst also allowing for future expected inflation in 2023 and 2024, which is of course higher than in previous years.
Looking ahead, assuming inflation is brought under control in both the domestic and global economy and supply chains adapt to meet the increased demand in the leisure vehicle sector (meaning the cost of parts for new and replacement vehicles falls or at least flattens out) then we could expect insurance premium increases to settle down, possibly from mid-2024 to more 'normal' levels.
Unfortunately current trends look set to continue for at least the rest of this year and probably well into next.”
Do call us on 01342 649 880 to check that you are getting the very best Caravan Cover for your needs.