July 2022 Market Update – Motor / Plant & Equipment
Demand for motor vehicles and parts remain at an all-time high – the global shortage of semiconductor chips that power electronic equipment, machinery and motor vehicles has been aggravated by the pandemic and continues to exacerbate and disrupt supply chains.
Motor vehicles including heavy plant and machinery have experienced a price surge due to factory closures and interrupted supply chains. This has delayed the production and distribution of semiconductors, electronic parts, and accessories. It’s estimated that production may not return to pre-pandemic levels until 2023. The impact of the shortage crisis extends beyond the manufacturing of cars, motor parts machinery and accessories — it is also affecting the world of automotive insurance.
The rise and integration of artificial technology such as automated machinery and vehicles has also played a major role in the motor insurance market. As demand surges with the shortage of new vehicles, machinery inventory and parts, consumers are turning to the used vehicle market for purchases.
Australia’s inflation rate is at the highest level seen since the early 2000’s. Ongoing supply chain issues around the world and rising inflation has resulted in increased cost of materials, parts and labour, and has also created a shortage of available new machinery and motor vehicles locally within Australia. Due to this shortage, we have observed a significant increase in the value of machinery and motor vehicles on the second hand market. It is prudent that policy holders review their insurable values to ensure their accuracy, based on current market value; this will ensure policy holders are adequately covered in the event of a claim.
Supply chain issues aside, claims frequency is also impacting rates for this class of insurance. Motor insurance for commercial and corporate clients with large vehicle fleets are set to rise, this is due to the claims which insurers have been recording over the years. KPMG’s 2021 General Insurance Insights show an incline trend in loss ratios. The latest loss ratio calculated for year ending December 2021 was 62.51 per cent, annual gross incurred claims totalled $1.931B in comparison to earned premiums of $3.089B.
Insurers are likely to incur higher claims settlements, and insureds need to carefully review their current market values when looking at renewal. Clients who suffer losses also need to work with their broker to proactively manage the claims process to ensure that vehicles are not written off when no replacement vehicle is likely to be available to replace it in the short term. Under such circumstances, repairing a damaged item of plant may be preferable to replacement in the current environment.
In any event, the increase in costs associated with losses, as well as the higher number of natural events leading to significant losses will put upward pressure on pricing of this class of insurance. Demonstrating good risk management in relation to storage and use of plant and equipment will be key to the underwriting process to ensure the best possible outcome at renewal.
With regard to appetite, there are various motor carriers and markets available for policy holders. For contractors and businesses in the construction sector, coverage for unregistered mobile plant and machinery assets are typically sought under a contract works policy or standalone equipment policy. In the current market we observe insurer carrier preference is for increased deductibles over retracting cover. An increased deductible structure can also be considered by policyholders to assist with yielding premium savings.
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