Trend Tracker has warned insurance companies of a predicted rise in the number of accident claims, brought on by the recent drop in fuel costs.
The company’s latest UK Car Body Repair Market report warns that insurance company profits will be dented by a repair capacity deficit.
The number of repairs is forecast to rise from 4.2m in 2014 to 4.3m in 2020, with the average repair cost to rise from £1,115 to £1,157, as lower fuel costs encourage greater car use.
The number of car body repair workshops (bodyshops) has declined by 32% over the last decade and Trend Tracker predicts a further 9% decline, to just 3,020 by 2020.
Bodyshop owners have long bemoaned the lack of profit in insurance-funded repairs. Based on an average insurance accident repair cost of £1,380, a large insurer-approved bodyshop, operating on modern factory flow-line repair principles, will typically earn just £13.52 net profit on a job taking 15.7 hours to complete (source: ABP Club). This equates to a profit of just 86p per hour per repair.
This, combined with the expected increase in the number of repairs, will create an 11% shortfall in repair capacity by 2020. The resulting backlogs will increase insurers’ costs and leave vehicle owners frustrated.
Lead analyst at Trend Tracker Robert Macnab said: “As recently as 2004 there was a repair capacity excess of nearly 50%. Insurers were spoilt for choice in terms of who to give work to and could dictate terms. The increasing repair capacity deficit will put quality bodyshops in a much stronger position to secure a better deal from insurers.
“We will see more repairers renegotiating or simply rejecting the least profitable insurance contracts, particularly where there is an open-ended obligation for them to provide courtesy cars at their own expense. The hourly labour rate is also likely to rise, further denting insurers’ profits.
“Passing on these extra costs to motorists might not be an option for insurers. The UK motor insurance market is highly competitive and attempts by insurers to raise premiums have often come unstuck, particularly due to the influence of price comparison websites, which encourage low prices.”