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Insurance companies being left ‘exposed’ by sky-high used car prices

  • Hike in used car prices having huge knock-on effect on insurance companies
  • Sky-high prices are leaving firms exposed to higher costs when vehicles are written off
  • Direct line sees premiums fall 1.4 per cent in Q3

Time 3 weeks ago

As dealers continue to enjoy the biggest hike in used car prices in living memory, there are fears the boom could bring the insurance industry to its knees.

A report in the Financial Times warns that sky-high prices are leaving insurance companies ‘exposed’ to higher costs when a vehicle is written off.

There are also serious concerns about inflation on costs per claim, which is currently running between three and five per cent above medium-term expectations.


The insurance industry has also been affected by the fact there have been fewer cars on the road – meaning fewer accidents.

Largely as a result, the price of motor insurance has fallen by seven per cent over the past year.

Prices are now running at the lowest levels since 2016, leading to concern from insurers.

The concerns come as companies continue to struggle in the battle against the pandemic.


The industry has felt the knock-on effect of supply chain shortages, such as the semiconductor crisis, which are largely responsible for the rise in value of used cars.

Penny James, Direct Line chief executive, said: ‘Prices [for used cars] are several thousand pounds higher than they were this time last year.

‘We are pricing for inflation, but not everyone is.’

James was speaking as Direct Line confirmed that overall premiums rose by just 0.7 per cent to £857.1m in Q3

While both car and travel and premiums fell, a rise in demand for roadside services dug them the company out of a hole.

Overall, the firm brought in £857.1m in overall gross written premiums in Q3.

The number of policies in force fell to 14,410, from 14,471 the previous year and car premiums fell 1.4 per cent to £440.9m.

The firm remains hopeful that new car production will see a rise in the coming months, leading to a rise in insurance prices once again.

James added: ‘Whilst market pricing in the first few months of 2022 is likely to be volatile as the market resets, our brands, customer focus and diversified business model mean we remain confident.’

Direct Line shares fell by three per cent yesterday (Tuesday) and are broadly flat over the past year despite a series of share buybacks.

Jack Williams's avatar

Jack joined the Car Dealer team in 2021 as a staff writer. He previously worked as a national newspaper journalist for BNPS Press Agency. He has provided news and motoring stories for a number of national publications including The Sun, The Times and The Daily Mirror.

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