UK motor claim costs have risen 34% in four years due to higher input prices, more complex and expensive cars, and increases related to hire vehicles, theft and uninsured drivers, a regulator has found.

Total claims costs grew to £9.1 billion ($18 billion) in 2023 from £6.8 billion ($13.9 billion) in 2019, according to Financial Conduct Authority research completed after a government taskforce on cost-of-living pressures was established.

FCA deputy CEO Sarah Pritchard says external cost pressures – not increased profits – are mainly to blame for motor premium rises, but the industry has work to do on claims handling.

Report recommendations to government and industry include increasing skilled labour availability and action to ease supply chain pressures.

Claims costs associated with repairing vehicles after accidental damage and property damage accounted for 65% of the overall increase.

Costs related to replacement vehicles grew 48% to £699 million ($1.4 billion), with the report identifying impacts from accident management companies, claims management companies and credit repair and hire organisations.

The FCA recommends insurers develop a good practice code to reduce referrals and consider how to remove incentives for first-party claimants to use such companies, and it urges insurers to find ways to better control costs associated with replacement vehicles.

The Association of British Insurers says it will engage with members and the regulator on claims handling improvements.

“The FCA’s findings confirm that record-breaking claims costs are behind recent increases in motor insurance premiums,” director general Hannah Gurga said.

“They also demonstrate that many of these cost pressures – such as rising vehicle repair costs, part shortages and increased thefts – stem from issues beyond the industry’s direct control, making collaboration essential to find sustainable, long-term solutions.”

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