In summary, the guide explains the challenges the automotive industry is facing with global supply chain delays, lack of experienced staff, and how developments in motor technology are causing an increase in car part theft – all of which are having a significant impact on motor claims inflation, which had increased by 6.1% for UK motor insurers during the first half of 2021*. Learn some top tips to reduce motor vehicle theft.
Supply shortages due to the pandemic
As we already know, the pandemic has brought with it global supply chain delays in all industries, not just the motor trade. And, just like others, the semiconductor industry was forced to stop production and participate in global lockdowns, meaning a delay or lesser supply of chips than usual.
Semiconductors (crucial to creating an integrated circuit (IC), otherwise known as a chip or microchip) can be found all around us in technology that needs to process information. With vehicles being so technologically advanced now and having up to 3,000 microchips in a single vehicle**, the shortage crisis is affecting almost every manufacturer. The scarcity is causing such prolonged delays in the building of vehicles that some car manufacturing plants have had to temporarily close altogether.
The outcome of all this is that buyers are facing long delays, with purchases sometimes running into 2023, or receiving no expected delivery date for the new vehicle when placing the order, or having to spend more on a second-hand vehicle due to its market value having gone up.
With the second-hand market increasing, this also raises a concern as to whether these vehicles are correctly insured. It is important for drivers to make sure they are adequately insured as most insurers will pay the market value; this means you may not be able to claim what the vehicle is actually worth.
Brexit and other factors contributing to the decline in motor trade employee numbers
It seems the number of people working within the motor trade has been in decline for the last few years. In 2014, KPMG, a global network of professional firms providing audit, tax and advisory services, released a report detailing that there was already “a shortage of qualified scientists, engineers and technologists (SET)” in the UK automotive sector***. Furthermore, the Guardian wrote in October 2019 about how Brexit uncertainty has caused car firms to cut jobs, which you can read about here.
Since then, the Institute of Motor Industry (IMI) have even addressed these concerns in their ‘Automotive sector employment 2021-2031’ report they released in July this year. The IMI predicts a shortfall of 160,000 workers in 2031 due to an aging population with fewer young workers joining the industry, decreased immigration due to Brexit, and a lack of EV skilled technicians to keep up with the UK’s move to be ‘greener’****.
Availability and delivery affected by the Ukraine war
Carmakers BMW, Audi, VW, Porsche, and others are all also struggling to obtain the wire harnesses that hold all the vehicle cabling together because of manufacturing resources being based in Ukraine and the inevitably reduced production rate caused by the Russian invasion. The components that these brands need are bespoke to each vehicle model, therefore the domino effect starts from the lack of production to fewer deliveries, to production of vehicles halting, and finally car manufacturing plants having to shut down all over Europe.
Parkers, the UK’s most-trusted site for helpful reviews and advice on new cars, tells us about the raw materials that Russia and Ukraine supply to the car industry, with Ukraine supplying Europe with almost 30% of its steel and 25% of noble gas (used in the production of semiconductor chips). Russia also supplies metals, including palladium, platinum, rhodium, aluminium, steel and nickel (used in vehicle batteries) *****.
Again, with demand outweighing current supply, there is an inevitable shortage and higher costs for such components.
Increased theft in motor technologies
Advanced and improved technologies within vehicles, such as anti-lock braking systems, automated lane keeping systems and light detecting headlamps mean a more expensive repair job when that feature is damaged than those found in older vehicles. This also means they are worth more than your average components, which ultimately results in increased theft of these car parts. With government schemes moving the country from fuelled cars to hybrid and electric powered vehicles, the rate of theft is only likely to increase further.
Electric vehicles (EVs) are also susceptible to expensive and long repairs due to the lithium batteries that are located at parts of the vehicle that are vulnerable to damage. When an EV is involved in an incident, the parts for the charging point itself will need replacing, and not just the body parts. If the battery housing is damaged, then it results in a full replacement of the vehicle as there becomes a risk to safety. Then there is the disposal of the lithium battery itself, which is, of course, another expense.
The lack of EV specialists is also a cause for delay, and this will only worsen as EV adoption increases as there are currently not, and will not be, enough qualified technicians to cover the work. The Institute of the Motor Industry reported that by 2030 the UK will need around 90,000 qualified technicians – a shortfall of 35,700 technicians, to service the volume of zero-emissions vehicles that we are predicted to have by then******. This will likely result in extended repair delays, the need for more vehicle storage, and a demand for higher pay for qualified technicians – the cost of which will most likely be passed back to the consumer or insurer.
What impact does all this have on you?
The biggest thing to understand here is why motor claims are taking so long to process once vehicles go in for repairs, which we hope the above helps to explain. Although this is naturally very frustrating, and we will always do our best to help our clients get the most efficient settlement possible, there are factors at play beyond the control of insurers, repairers and manufacturers that are impacting the speed with which claims are able to be settled.
Secondly, courtesy cars and how long they are required for is now becoming an issue. The repair network and third-party providers, such as approved repairers and courtesy car firms, are also held up by the above circumstances, meaning courtesy cars are not always readily available.
During the pandemic, repairers chose not to renew leases on courtesy vehicles to save money as they were no longer required with the UK facing multiple lockdowns and people travelling a lot less. However, they didn’t foresee the problem that this would cause when things returned to ‘normal’, in that they would need these vehicles again or need to source new vehicles and new leases. With this issue still affecting the repair network even today, insurers cannot always expect the repair firms to provide a courtesy car when it is needed. They do, however, appreciate the firms are doing their best and that majority of the time can source and provide a vehicle without any issues, but limited stock can affect and delay repair work from starting.
Thirdly, if a vehicle can’t be repaired (due to supply pressures) and needs to be replaced, purchasing a readily available second-hand vehicle with the cash settlement is a quick solution, however the cost is often more than the price of an equivalent new vehicle because these are not as readily available, as we have learnt. If it must be replaced with a brand new vehicle (e.g. in the event of a Guaranteed Asset Protection (GAP) insurance claim – where an insurer pays out the current market value of your vehicle when it is stolen or written off, GAP insurance covers the shortfall of what you paid for the vehicle so that you are not left significantly out of pocket) then you should be aware that the wait time is likely to be long and there is no guarantee that the cost of the vehicle may not change when it finally arrives.
All of the above increases the potential claim cost and can contribute to increased premiums in the future, but it’s not all bad news. Although road activity has increased again, with the country adopting new methods of working and businesses introducing home working and hybrid roles, it means there are fewer vehicles on the roads which, ultimately, results in fewer accidents as proven by the decrease in claims that insurers saw during the lockdowns in 2020.
Moreover, the impact of these challenges extends to commercial fleet vehicles, exacerbating issues such as prolonged repair times and increased costs. As the automotive landscape evolves, it’s crucial for businesses to stay informed and proactive in managing their fleet operations. Learn more about the implications for commercial fleet vehicles and how McClarrons can support your business.
We are here if you need us
This may seem over the top as none of us ever plan on having to make a claim, but we hope that everything we have detailed above, and by providing this information early on, helps you prepare for these types of circumstances and instances arising should you need to make a motor claim, and the provisions you may need to make.
In light of the challenges facing the automotive industry, McClarrons is here to assist you in arranging motor insurance that meets your needs. Our team of experienced professionals can help navigate the complexities of motor insurance, ensuring you have the coverage required to protect your vehicles and assets. Whether you’re insuring a single vehicle or an entire fleet, we’re committed to providing tailored solutions to safeguard your business interests.
If you have any queries surrounding your motor insurance or the implications of motor claims inflation, please do not hesitate to contact our McClarrons claims specialist, Mike Seals-Law, at michael.sl@mcclarroninsurance.com.
Source:
** https://www.autoexpress.co.uk/news/355016/global-chip-shortage-hits-car-makers
*** https://www.smmt.co.uk/wp-content/uploads/sites/2/SMMT-KPMG-EU-Report.pdf
**** https://tide.theimi.org.uk/industry-latest/research/automotive-sector-employment-2021-2031
***** https://www.parkers.co.uk/car-news/2022/supply-chain-crisis/
******https://tide.theimi.org.uk/industry-latest/news/2026-marks-cross-roads-ev-skills-gap
