UK auto claims inflation has peaked, the gap to rates can close: BofA

Automotive claims inflation in the UK may have peaked, allowing the industry a window to help close the lag in pricing, analysts at  Bank of America Securities declared following the UK’s August inflation report.

“Today's UK CPI release points to easing claims inflation pressures for UK P&C insurers, while new business pricing is holding firm,” analysts say of the August read.

“This should help to narrow the gap between pricing & claims inflation,” analysts write of what they call a recent reversal in trend. “To date, the sector has struggled to price for elevated claims inflation. Slowing inflation in key components is good news.”

Key motor insurance claims components “appear to now have peaked,” analysts wrote. Used car prices, still some 30% above pre-Covid levels, appear to have stabilized on a 4.5% year on year increase reading for August, they said of key components.  Spare parts inflation was 2.2% in August, with price increases “also generally slowing.” Medical cost inflation remains marginal.

That moderation in claims inflation allowed continued price gains to start to close the gap. New business pricing in automotive rose 14.4% year on year in August on a 2.9% monthly increase. Pricing had been behind claims inflation through at least mid-year, analysts claimed.

The story in home insurance has yet enjoy such developments, although pricing actin has remained strong.

“Home insurance claims components continue to experience elevated claims inflation,” analysts wrote. “But pricing seems to be keeping up.”

Bank of America Securities cited a UK house rebuilding cost index at an all-time high, up 19.0% year on year, on a 14.4% gain in material costs. Services for repairs and maintenance inflation held lower at 2.1%.

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