Direct Line has been ordered to go back through five years of claims after admitting it had underpaid some car and van insurance customers. The Financial Conduct Authority issued a notice on Wednesday 28th June saying the FTSE 250 insurer “must carry out” a review of total losses where vehicles had been written off, “to identify any policyholders who received unfair settlements and provide them with appropriate redress”.

Financial Times 28th June 2023

On 4th July the FCA sternly warned home and motor insurers that they must improve their treatment of vulnerable customers and claims handling after finding multiple examples of ”poor practice” among general insurance (GI) firms. THis followed the publication of the FCA 'Cost of Living: good and poor practice in the general insurance market' review on the third of July

If GI insurers are undervaluing ICE (internal combustion engine) vehicles deemed as total losses, the latest report from Thatcham Research,  Impact of BEV* Adoption on the Repair and Insurance Sectors'   only adds to insurer's woes and those of their customers. Especially as the FCA urged consumers to contact their insurance company to complain if their claims have been delayed or they were not happy with how their claims were being handled.  encouraging customers to complain over 

*BEV- Battery Electric Vehicles.

ICE vehicles are getting more complex and expensive to maintain as advanced driving assistance systems (ADAS) get more complex and the sensors embedded need replacement and recalibration when damaged in road traffic accidents. The issue with BEVs is the lack of experience and data for carriers to underwrite and manage claims. The implications for repair networks are significant as implications remain unquantified on repair capacity, training and skills and cost of repairs.

BEV incident claims are currently ~25.5% more expensive than their ICE equivalents and can take ~14% longer to repair. Road collisions involving a BEV can be catastrophic for the vehicle as understanding and competence in rectifying the damage continues to develop.

And back to total loss claims: 

"Currently, the cost of a replacement HV battery is causing a significant increase in the risk of ‘total loss’ or write-offs. The cost of HV batteries varies widely from high-end vehicles, currently costing ~£29,500, to the low-end costing ~£14,200. The ‘depreciation curve’ of battery cost versus average used value, shows that the cost of a replacement battery is more than the used price of the vehicle after only one year."

Thatcham Research

The report’s authors would suggest investment in further cross-industry work to identify more detailed solutions and to make direct recommendations about a range of interventions or support to accelerate those solutions. For example, by understanding the needs of vehicle manufacturers, repairers, insurers, and salvagers to optimise the supply of new / refurbished / recovered batteries in vehicle repair.

Thatcham Research continues to work closely with Government and Vehicle Manufacturers to identify solutions to the issues raised by the report.

To access a full copy of the report, click here:

What to do in the short-term?

One is to gather current data on both ADAS-enhanced ICE vehicles and BEVs.  This is a priority emphasized frequently by Martin Ellingsworth Executive Managing Director at J D Power. Another is to ensure that eFNOL is effective in gathering all the information required to feed the various estimatics software and other aids that can enhance the claims team's decisions. 

The enormous volume of data generated by IoT and telematics data needs ingestion, analysis to create actionable insights a factor Tom Clarke Chief BEC Officer at Abacai discussed at the recent Instech events "Insuring the future of Mobility".

At the same event,  Kevern Thompson Business Unit Director of the Caps Consortium explained how insurance claims systems and body shop/ repair shop systems can share data to help achieve the collaboration and orchestration that Thatcham Research identifies as vital for the cross-industry approach required.

Still loads to do so one other priority is to read the report and plan how to address the issues described.

Further Reading

Motor insurers endure worst underwriting conditions in a decade

Customers, mobility services and telematics motor insurance products