Watch Out for ‘Total Loss’

18 May 2023 - Jason Harden

Fleets need to get something on their radar, as vehicle write-offs could become more common within insurance claims, if rising costs make it more expensive to repair than scrap.

Numerous factors are now impacting on motor insurance claims, and the process has become a vicious circle. A vehicle is only typically written off when the total hire car charges and repair bill would exceed its value, but this is rapidly becoming a reality for many claims.

The average motor claim is now £5,349. Repair cost inflation has been fuelled by an acute shortage of spare parts, beginning with the much-reported pandemic semiconductor chip shortage. It is now being exacerbated by the conflict in the Ukraine – a country which produces 50% of the world’s neon – that is vital for semiconductor chips, of which a modern car can require up to 1,500. Ukraine was also a major supplier of nickel and palladium, used in electric batteries and catalytic converters.

The weakness of Sterling has also driven up the price of imports, such as in the automotive sector, where 80% comes from the EU1.

Shortages mean that turning vehicle repairs around is taking longer. In the first eight months of 2022, it took 11 days more to get a vehicle back to the customer, following first notification of loss, than previously. This has put huge pressure on claims, due to the soaring replacement vehicle hire costs. The insurance industry even had to strike a deal with the credit hire companies, agreeing to pay faster, in return for lower hire rates, but the agreement only lasts until June 2023.

Energy price hikes have greatly impacted on repair shops. In July 2022, 63% of independent garages and dealership workshops said they would be increasing their prices to customers2.

This also affects technology and the inclusion of brilliant but extremely costly to replace Advanced Driving Assistance Systems in vehicles.

For anyone running a fleet, it is time to embrace risk management and adopt strategies that reduce claims. It’s also where a fleet broking specialist can step in, analyse claims experiences, spot patterns and trends, to advise on solutions.

However, for those buying new vehicles or leasing vehicles, there is a further consideration. If insurers write-off vehicles, rather than repair them, payouts may not allow for brand-new replacement vehicles to be purchased, or for the finance agreement to be paid off.

In the first scenario, whilst the insurer should compensate for the vehicle’s value at the time of write-off; in the second scenario, you could be left paying finance on a vehicle you no longer possess, with the insurance payout insufficient to cover contractual sums owed.

It might be time to consider ‘gap insurance’, if you are not content to replace a vehicle only to the value of one written off, or if you cannot contemplate being left with ongoing finance agreement payments on a written off vehicle. If that’s the case, talk to an insurance broker, as you will probably find a better deal than buying gap insurance through a dealership.


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