The Perfect Storm: Rising Motor Insurance Rates in Logistics and Supply Chain While Customers Refuse Price Increases

The logistics and supply chain sector is encountering turbulent times as rising motor insurance premiums collide with customers’ reluctance to accept price increases. Faced with escalating operational costs, companies are compelled to adopt new strategies and explore creative solutions to safeguard profitability in an increasingly challenging market.

Recent figures illustrate a worrying trend in motor insurance rates:

- Motor insurance premiums surged by an average of 25% in 2023 compared to 2022, highlighting a sharp increase (Association of British Insurers, 2024).

- By the fourth quarter of 2023, the average premium had reached ￡627—a staggering 34% increase from the previous year (ABI, 2024).

- Specifically in the haulage sector, premiums climbed by 25% over 2023, with a further 10% rise forecast for 2024 (AJG, 2024).

These figures underscore the urgency for logistics companies to reassess their risk management strategies. Often, outdated or inefficient supply chains lead to overspending on insurance. Conducting a thorough supply chain review could help identify unnecessary costs and better align insurance coverage with actual risk.

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?Key Factors Driving Premium Increases

?Several factors are contributing to this steep rise in premiums, reflecting broader market conditions:

?1. Rising Repair Costs: Vehicle repair costs have escalated due to:

?? - Increasing material costs, influenced by global events such as the war in Ukraine

?? - Greater repair complexity, particularly for electric vehicles

?? - Extended repair times, which necessitate longer replacement vehicle needs ([Fleetcover, 2023] (https://fleetcover.co.uk/biggest-factors-to-affect-fleet-insurance/)).

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2. Supply Chain Disruptions: Delays in part availability are lengthening repair times and driving up costs. For logistics companies, these delays introduce new risks, such as contractual service penalties, indirectly impacting insurance coverage ([AJG, 2024] (https://www.ajg.com/uk/news-and-insights/2024/february/whats-driving-up-claims-costs-in-haulage/)).

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3. Labour Shortages: Brexit and pandemic-related retirements have contributed to a shortage of skilled workers, raising labour costs across the sector (Marsh Commercial, 2024).

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4. Inflation: Widespread inflation has affected all aspects of insurance, repair, and logistics, inflating costs further.

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5. Increased Claims Frequency: Post-pandemic, as traffic levels returned to normal, the frequency of accidents and claims has surged ([Aviva, 2023] (https://www.aviva.co.uk/insurance/motor/car-insurance/knowledge-centre/why-has-car-insurance-gone-up)).

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6. Severe Claims Impact: Changes to the Ogden discount rate have significantly increased the cost of catastrophic personal injury claims ([ABI, 2024] (https://www.abi.org.uk/news/news-articles/2024/8/motor-premiums-fall-for-the-first-time-in-two-years/)).

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Industry Response and Outlook

?In response, the insurance industry is making a series of adjustments:

- In 2023, for every ￡1 collected in premiums, ￡1.13 was paid out in claims and expenses, reflecting the pressure on insurers to maintain profitability ([ABI, 2024] (https://www.abi.org.uk/news/news-articles/2024/1/motor-insurance-premiums-continue-to-rise-as-insurers-battle-costs/)).

?- Some insurers are reassessing their risk profiles, with several choosing to exit the logistics insurance market entirely ([Marsh Commercial, 2024] (https://www.marshcommercial.co.uk/articles/shrinking-world-of-insurance-in-transport-and-logistics.html)).

- The industry is placing heightened emphasis on physical security and fire protections for logistics operations as part of broader risk management efforts ([Fleetcover, 2023] (https://fleetcover.co.uk/biggest-factors-to-affect-fleet-insurance/)).

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Strategies for Logistics Companies

?To navigate these challenges, logistics companies should consider a proactive approach to risk management. Here are several strategies that may help:

?1. Supply Chain Review: Engage independent supply chain experts to assess and optimise your current setup. An unbiased review can identify inefficiencies and unnecessary assets, ultimately reducing insurance costs and improving alignment with business activity.

?2. Proactive Risk Management: Implement robust risk management measures, such as regular driver training and telematics, to reduce accident frequency and claims ([AJG, 2024] (https://www.ajg.com/uk/news-and-insights/2024/february/whats-driving-up-claims-costs-in-haulage/)).

?3. Early Engagement with Brokers: Begin discussions with insurance brokers early to explore market options and secure the best coverage. Brokers often have access to a wider range of options, offering specialised solutions that may not be available through direct insurers ([Marsh Commercial, 2024] (https://www.marshcommercial.co.uk/articles/shrinking-world-of-insurance-in-transport-and-logistics.html)).

?4. Investment in Technology: Advanced driver assistance systems (ADAS) and other technologies can help mitigate risks and lower premiums ([Aviva, 2023] (https://www.aviva.co.uk/insurance/motor/car-insurance/knowledge-centre/why-has-car-insurance-gone-up)).

?5. Claims Defensibility Review: Conduct periodic reviews to reduce exposure and strengthen claims defensibility ([ABI, 2024]

(https://www.abi.org.uk/news/news-articles/2024/1/motor-insurance-premiums-continue-to-rise-as-insurers-battle-costs/)).

?6. Focus on Fleet Management: Adopting efficient fleet management practices demonstrates a commitment to reducing risks, which can positively impact insurance costs ([Fleetcover, 2023] (https://fleetcover.co.uk/biggest-factors-to-affect-fleet-insurance/)).

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Looking Ahead

?While the upward trend in motor insurance premiums is concerning, there are early signs of potential stabilisation. The Association of British Insurers (ABI) reported a 2% decrease in average motor insurance premiums in Q2 2024 compared to Q1, marking the first quarterly drop in two years. However, premiums remain significantly elevated, and the insurance landscape remains complex ([ABI, 2024]

(https://www.abi.org.uk/news/news-articles/2024/8/motor-premiums-fall-for-the-first-time-in-two-years/)).

?For logistics companies, navigating these changes requires a forward-thinking approach. By addressing supply chain inefficiencies, adopting modern technology, and engaging with experienced brokers, companies can position themselves to manage insurance costs more effectively and maintain operational resilience.

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Note: My consultancy offers support for comprehensive supply chain reviews to identify areas where insurance costs may be reduced. While I am not FCA-registered and cannot recommend specific insurance providers or products, I am happy to connect anyone interested with trusted brokers who have extensive experience in logistics and fleet insurance.

Just drop me a quick message and I will send you their contact details.