Impact of supply chain issues in insurance claims

Motor

Motor claims are being affected by delays in parts and increased costs. Parts for cars and commercial vehicles are impacted by supply chain issues, in particular due to the issues with semiconductor computer chips, and vehicles are often off the roads for months at a time if they are involved in an accident. Costs have also increased and according to Allianz data¹, in just the last year labour costs have risen by 6.5%, repairs by 6.6% and parts by 9.1%. These problems are affecting most vehicle manufacturers, although some are impacted worse than others.

The cost of replacement vehicles is also a thorny issue currently. Waiting lists for cars and, in particular, commercial vehicles are extremely long. A recent What Car? article² stated that vehicles that traditionally would have taken six to eight weeks now have delays of up to a year.

This is an issue for all drivers whose vehicles are written off, but is considerably problematic for commercial vehicle users who cannot run their business without transport. The knock on effect is that used commercial vehicles are now in many cases being sold for more than they were purchased for when they were brand new.

Residential property

When it comes to home property claims, the cost and lack of availability of materials is having a significant knock on effect. Many materials have vastly increased in cost in the last year and this is being exacerbated by lengthy delays in availability. By way of example, Insurance Times reported that in October 2021 imported, sawn or planed wood saw a 74% price rise³, while fabricated structural steel experienced a 73% growth in costs. According to builders that were quoted in the BBC, bricks are taking over six months to arrive⁴ and the Office of National Statistics has stated there are currently 33,000 jobs in construction available, one of the highest ever⁵.

This means that start dates of repair works can be many months from when the damage occurred and insureds are having to potentially spend longer in alternative accommodation for much longer than usual circumstances.

Commercial business property

From a commercial property standpoint we are seeing similar problems and businesses are forced to be out of action for longer than they usually would. Increased costs are also an issue with Allianz data showing in just the last year claims as a result of fire increased by 6% and escape of water by 10%⁶. Construction materials are up 8% overall in 2020 v 2021 figures.

Clients should talk to their broker regarding whether the indemnity period on their business interruption cover is long enough as this can be extended to cover the current circumstances.

This is a brief summary of the situation to help advise businesses and individuals of the current issues that may occur if they need to make a claim. Speak to your broker who can advise on additional cover to help manage these issues.

This note is not intended to give legal or financial advice, and, accordingly, it should not be relied upon for such. It should not be regarded as a comprehensive statement of the law and/or market practice in this area. In preparing this note we have relied on information sourced from third parties and we make no claims as to the completeness or accuracy of the information contained herein. You should not act upon information in this bulletin nor determine not to act, without first seeking specific legal and/or specialist advice. Our advice to our clients is as an insurance broker and is provided subject to specific terms and conditions, the terms of which take precedence over any representations in this document. No third party to whom this is passed can rely on it. We and our officers, employees or agents shall not be responsible for any loss whatsoever arising from the recipient’s reliance upon any information we provide herein and exclude liability for the content to fullest extent permitted by law. Should you require advice about your specific insurance arrangements or specific claim circumstances, please get in touch with your usual contact at Gallagher. FP number FP74-2022.

1. Allianz motor claims inflation update
2. https://www.whatcar.com/news/chip-shortage-delays-how-long-will-you-have-to-wait-for-a-new-car/n23449
3. https://www.insurancetimes.co.uk/insight/rising-material-costs-prompt-underinsurance-warning/1439595.article
4. https://www.bbc.co.uk/news/uk-england-norfolk-58462451
5. https://www.ons.gov.uk/employmentandlabourmarket/peopleinwork/employmentandemployeetypes/bulletins/jobsandvacanciesintheuk/december2021
6. Allianz commercial claims inflation update