In recent years, motor insurers have struggled with high inflation, making it hard to stay profitable. In 2023, for every £1 collected in premiums, insurers paid out £1.12 in claims. To cover these losses, most raised premiums, which hit customers’ pockets.
By 2024, costs began to ease, with some claims returning to previous levels. This helped lower premiums for everyday cars, though commercial vehicle premiums were slower to come down, as they had been hit harder by inflation and take longer to adjust.
This article looks at how claims inflation affects premiums and what changes we expect through 2025.
Motor claims inflation eased in 2024 as wage growth steadied, repair capacity improved, supply chains strengthened, and used car prices fell. Still, repairs and second-hand values remain volatile and prone to shocks.
Key pressures for 2025 include:
EV repairs: Workshops are adapting to more electric vehicles, but a shortage of trained technicians and added safety steps are slowing repairs and driving up hire car costs.
Rising labour costs: Higher Employer NICs are set to push up repair and care expenses, especially for serious injury claims.
Injury claims: Whiplash tariffs and updated Judicial College guidelines continue to drive costs upward.
Discount rate: The move to a 0.5% Personal Injury Discount Rate across the UK has reduced reinsurance costs.
Claims inflation is expected to settle between 6–8% in 2025, though new US tariffs and shifting trade deals may add short-term volatility.
Supply Chain
Manufacturers have strengthened supply chains by diversifying sourcing and distribution, while repair capacity remains strong thanks to lower claims volumes (down ~10%). Post-COVID parts shortages have mostly eased. However, new car registrations remain below pre-pandemic levels as production shifts from petrol and diesel to electric vehicles to meet the 2035 net zero target. Reduced ICE production risks pushing more demand into the used car market, adding inflationary pressure.
Repair
Labour costs rose sharply in early 2024 (+14%) but have since stabilised, though higher minimum wage (+7%) and Employer NIC (+1.5%) will keep pressure on rates. EVs are ~25% more expensive and 14% slower to repair than ICE vehicles, meaning repair inflation will rise as EV numbers grow. Global disruption also matters: the Red Sea crisis pushed shipping costs up 300% and parts prices up 8% in Q1 2024, with further increases later in the year. Advanced Driver Assistance Systems (ADAS) are also adding cost and complexity to repairs.
Used Cars
Used car prices dropped in 2024 but remain higher than historic levels, supported by a shortage of 3–5 year-old vehicles from the COVID production gap. Demand is strong, especially for older vehicles, while EVs remain ~30% more expensive than ICE cars. This creates upward pressure on total loss costs. Regulators now require insurers to use the highest comparable guide value in settlements, further raising claim severity.
Credit Hire
Rental periods are shorter than post-COVID peaks but still 13% longer than before the pandemic due to reduced parts availability. Rates rose 7% in July 2024 and remain volatile; once oversupply in the market corrects, further increases are likely. Credit hire costs are now five times higher than in 2014, far outpacing inflation.
Personal Injury
Compensation levels continue to climb. The Judicial College Guidelines were raised by 23% for non-whiplash injuries, applying to both new and historic claims. The whiplash tariff will increase 15% for accidents from May 2025. As more claims exceed the £5,000 Small Claims Court threshold, legal costs will increasingly fall back on insurers.
Care costs remain the biggest driver of large claim inflation, with rises of 6–12% through 2024. Government policies on fair pay and immigration restrictions are expected to push costs higher in 2025, alongside increases in minimum wage and Employer NIC. While the Personal Injury Discount Rate has risen to 0.5%—reducing some costs and improving reinsurance—the overall trend is towards higher large injury inflation, mainly from care costs.
Fraud
Fraudulent claims remain a significant burden, with £1.1 billion detected in 2023 (+4% year-on-year). Motor accounts for almost half of this (£500 million). Higher compensation levels may encourage exaggerated injury claims, while the unchanged small claims court limit risks fuelling opportunistic fraud.
Shallowfake Technology: Fraudsters are using apps to manipulate images and videos, adding fake damage to vehicles. Instances of such "shallowfake" fraud have risen by 300% between 2021 and 2023.
Crash-for-Cash: There has been a significant increase in staged accidents, particularly involving scooters and motorbikes. Allianz reported a 6,000% rise in such claims from January to December 2023.