Why are the Insurance Premiums of outfits rising?

With general inflation as measured by the Consumer Prices Index (CPI) running at over 8% and pressure on household incomes coming from various directions, the last thing you want to face is a significant increase on your motor insurance premium.

However, it's a sad fact that many motorhome and campervan owners have seen such increases.

We asked Paul Dilley, Commercial Director at our partner brokers Devitt Insurance Services, for his take on how we’ve arrived at this point, and what might happen 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 ABI members include:-

  • Energy inflation adding to each repair.  
  • Average paint and material costs have increased by nearly 16%. 
  • Courtesy car costs to repairers are increasing at around 30%. 
  • In addition, the average price of second-hand cars has jumped by 30% in three years (source: Auto Trader). 

All of the above factors apply equally and in some cases more so to the leisure vehicle sector in which, for example, manufacturers of motorhomes had to compete with suppliers of commercial vehicles for the base chassis, driving up costs.

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 of say less than 5% on average.

Unfortunately current trends look set to continue for at least the rest of this year and probably well into next.”

Do contact the Club on: 01342 649 919 to see how much our Defaqto 5 star Expert rated Motorhome and Campervan Insurance would cost. Click here to compare your motorhome/campervan insurance product.

For further reading or additional source material, visit the Association of British Insurers website or Insurance Business website.

Published in July 2023

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