Motor insurers face critical shortfall in crash repair capacity
– 32% decline in number of bodyshops over last decade
– Further 9% decline predicted to just 3,020 by 2020
– Repair capacity deficit will increase costs and customer frustration
The latest UK Car Body Repair Market report, by independent research company Trend Tracker, warns that insurance company profits will be dented by a repair capacity deficit.
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.
This, combined with an expected 2% 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.
With insurance companies financing around 70% of all accident repairs, bodyshop owners have long bemoaned the lack of profit in insurance-funded repairs. This, coupled with a fall in the number of accident repairs since the 2006 peak, has led to many bodyshop closures.
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.
Robert Macnab, lead analyst at Trend Tracker, 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.”
Since peaking in 2006, the annual volume of car body repairs has fallen by 28% and the number of car body repair workshops has declined by 24%. The rise in oil and petrol pump prices during that time discouraged consumers and businesses from using their cars, resulting in fewer accidents. This trend was compounded by the onset of recession in 2008.
Trend Tracker, which has been analysing the market since 1994, notes that the UK car accident repair market has historically been very stable and resistant to macro-economic trends. The recent upheaval is unprecedented.
Now the market seems set for a period of sustained albeit modest growth, as lower fuel costs encourage greater car use, resulting in an increase in the number of accidents and the number of car body repairs.
With the number of repairs forecast to rise from 4.2m in 2014 to 4.3m in 2020, and the average repair cost to rise from £1,115 to £1,157, the overall market size will increase by 5% to £4.94bn by 2020 (based on 2014 prices excluding VAT).
If you ignore investment returns, motor insurers as a whole are expected to have been loss-making in 2014, with a combined ratio of 109%. This is partly due to excessive competition and persistently high personal injury claims, although accident damage claims account for two-thirds of all motor insurance claims.
For motor insurance companies, including the listed firms Admiral Group plc, Direct Line Insurance Group plc and esure Group plc, shrinking repair capacity combined with an increase in repair demand will result in rising accident repair costs and constrained profitability.
However, for companies in the accident claims and accident repair market, including the listed firms Innovation Group plc, NAHL Group plc, Quindell plc, Redde plc (formerly Helphire) and Nationwide Accident Repair Services plc, growth in the number of motor accident and repair claims will provide a welcome boost to their businesses.
Nationwide Accident Repair Services in particular, with its large chain of car body repair shops, should benefit from the expected increase in repair demand.
