Here’s why you shouldn’t expect another auto insurance refund
New Zealanders may be driving less because of the cost of living, but insurers are not planning to repeat the 2020 premium discounts.
At the start of the Covid-19 shutdowns, households drove less, leading to fewer claims and a boon for insurers.
As a result, AA Insurance reimbursed over $19.5 million to 400,000 auto insurance customers in 2020, while Tower reimbursed $7.2 million.
Figures from the collision repair industry show demand for parts and repairs is down 31% from pre-Covid levels as far fewer people travel by private car.
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Rising petrol prices are also contributing to a drop of up to 20% in traffic volumes in major city centres.
But AA Insurance and Tower say they have yet to see a decrease in claims and costs.
Beau Paparoa, motor claims manager at AA Insurance, said there had been a gradual “return to normal” in terms of motor claims since the early periods of lockdown.
While ongoing pressures, such as fuel prices, hadn’t made a noticeable difference in claims volume, parts supply issues had increased costs.
Since the start of the pandemic, it has been difficult to get supplies into the country, including spare parts for cars, Paparoa said.
“This can cause delays for customers and make it difficult to repair vehicles because insurers cannot access parts with the same ease as before.”
In many cases, it was now more cost effective to replace a car than to repair one, and this general trend was driving up the total cost of claims, he said.
AA Insurance expects claims volumes to return to pre-Covid levels over the next year.
Tower claims manager Steve Wilson said the insurer was experiencing a slight reduction in claims, down less than 2% between fiscal years 2019 and 2020, but that was offset by rising costs.
“Industry-wide inflation is a continued source of pressure on auto and real estate claims,” he said.
“For auto, this is mainly due to a 14% increase in the value of used vehicles and spare parts, which increases the cost of handling an auto claim.”
Tower motor vehicle claims were still on an upward trend to near pre-Covid levels, alongside rising inflation costs.
The exact numbers won’t be available until after Tower’s half-year results are announced next month.
Australian insurer IAG, which owns the AMI, State, NZI, NAC, Lumley and Lantern brands, did not respond to a request for comment on vehicle claims volumes and costs.
Meanwhile, auto repair industry players said they faced a “perfect financial storm” of economic and environmental factors that could determine its long-term viability.
Neil Pritchard, chief executive of the Collision Repair Association, said cost pressures on repairers were growing rapidly. Wages in the industry have increased by more than 10% over the past year.
Other costs, including paint, consumables and services, also increased by 15% over the same period.
IAG, which has a market share of over 60% in New Zealand, has also developed its own vehicle repair service, Repairhub, in Auckland, Wellington, Hamilton and Christchurch after a successful trial in 2019.
Pritchard said insurers were now able to funnel the most profitable cosmetic repair work through their claims process directly into their own repair network, and the industry needed more oversight to protect consumers.
“Most consumers are unaware that the repair facility advocated by their insurer is also owned by the insurer and that profits flow overseas rather than being retained by local businesses.
“Our concern is that with the insurance industry now effectively monitoring the quality of its own work, and the resulting loss of transparency in the relationship with its repairer, there is little consumer protection.”
IAG’s executive managing director of supply chain, Dean MacGregor, said the company has been open about its Repairhub facilities and customers can choose their repairer, whether they are a member of its network of authorized repairers. , Repairhub or another repairer of their choice.
“IAG takes its responsibilities as an industry leader seriously. We use the information we collect at Repairhub to continually improve the service.”
Pritchard also said the Repairhub model would put pressure on smaller independent repairers.
Prior to 2019, nearly all of New Zealand’s 500 body repair shops were locally owned, and the added competition facing the new insurer-owned model couldn’t have come at a worse time, did he declare.
“Since its inception, the local body repair industry has consisted of hundreds of New Zealand-owned panel repair shops.
“With prices dictated by insurers, the industry does not operate under the same competitive forces as most other service providers.”
This created greater vulnerability to changes in external costs and, when combined with a network of insurers that could capture large volumes of lucrative jobs, jeopardized the ability of repairers to develop infrastructure for more complex structural repairs.
“What we are seeing right now is the culmination of several economic factors that threaten the long-term viability of the industry and could see the reduction of services for Kiwi consumers,” he said.
“Reduced consumer access to repair facilities capable of carrying out structural repairs could lead to more cars being canceled unnecessarily and higher insurance costs for motorists.”