Here’s why you shouldn’t expect another car insurance refund

New Zealanders may be driving less as the cost of living bites, but insurers are not planning a repeat of 2020’s premium rebates.

During early Covid-19 lockdowns, households drove less, resulting in fewer crash claims and a windfall for insurers.

As a result, AA Insurance refund more than $19.5 million to 400,000 motor insurance customers in 2020, while Tower returned $7.2m.

Figures from the collision repair industry show demand for parts and repairs are down 31% on pre-Covid levels as significantly fewer people travel by private car.

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Rising petrol prices are also contributing to an up to 20% drop in traffic volumes in the main city centres.

But AA Insurance and Tower say they are yet to see any decrease in claims and costs.

Beau Paparoa​, AA Insurance​ head of motor claims, said there had been a gradual “return to normal” in terms of vehicle claims since the early lockdown periods.

While ongoing pressures, like fuel prices, had not made a noticeable difference to the volume of claims, problems sourcing parts had increased cost.

Since the beginning of the pandemic, it had been difficult to get supplies into the country, including replacement car parts, Paparoa said.

“This can cause delays for customers and can make it difficult to repair vehicles because insurers can’t access parts with the same ease as before.”

In many cases, it was now more cost-effective to replace a car than it was to repair one, and that general trend was driving up the total cost of claims, he said.

AA Insurance expected claim volumes to return to pre-Covid levels over the next year.

Tower chief claims officer Steve Wilson said the insurer was experiencing a slight reduction in claims, less than 2% decline between the 2019 and 2020 financial years, but that had been offset by rising costs.

“Industry-wide inflation is a continued source of pressure on both motor and house claims,” he said.

“For motor, this is predominantly being driven by a 14% rise in the value of second-hand vehicles and replacement parts, making the cost to fulfil a motor claim higher.”

Tower’s motor vehicle claims were still trending upwards to near pre-Covid levels, alongside rising inflation costs.

Precise figures would not be available until after Tower’s half-year results announcement next month.

Australian insurer IAG​, which owns the AMI​, State​, NZI​, NAC​, Lumley ​and Lantern ​brands, did not respond to a request for comment on vehicle claim volumes and costs.

Meanwhile, those in the car repair industry said they were facing a “perfect financial storm” of economic and environmental factors that could determine its long-term viability.

Neil Pritchard​, general manager of the Collision Repair Association said cost pressures on repairers were increasing rapidly. Wages in the industry were up more than 10% over the past year.

Other costs, including paint, consumables and services were also up by as much as 15% over the same period.

IAG, which has a market share of more than 60% in New Zealand, has also grown its own vehicle repair service, Repairhub, in Auckland, Wellington, Hamilton and Christchurch after a successful trial in 2019.

Pritchard said the insurers were now able to channel the more profitable, cosmetic repair work through their claims process directly into their own repair network, and the industry needed more oversight to protect consumers.

“Most consumers would be unaware that the repair facility being advocated by their insurer is also owned by the insurer and the profits flow offshore rather than being retained by local businesses.

“Our concern is that with the insurance industry is now effectively self-monitoring the quality of their own work, and the resulting loss of transparency in the relationship with their repairer, there is little in the way of consumer protection.”

IAG supply chain executive general manager, Dean MacGregor​, said the company had been open about its Repairhub facilities and customers could choose their repairer, whether that was a member of its approved repairer network, Repairhub or another repairer of their choice.

“IAG takes its responsibilities seriously as an industry leader. We are using the insights we gather at Repairhub to continuously improve the service.”

Pritchard also said the Repairhub model would put the squeeze on small independent repairers.

Prior to 2019, almost all of New Zealand’s 500 collision repair shops were locally owned, and the additional competition faced by the new insurer-owned model could not have come at a worse time, he said.

“Since its inception the local collision repair industry has been made up of hundreds of New Zealand owned panel repair shops.

“With prices dictated by insurers, the industry does not operate under the same competitive forces that most other service providers do.”

That created higher vulnerability to external cost changes and, when coupled with an insurer network which could capture high volumes of lucrative jobs, put repairers’ ability to develop infrastructure for more complex, structural repairs in jeopardy.

“What we are seeing at the moment is the culmination of several economic factors which are threatening the long term viability of the industry and could see the reduction in services for Kiwi consumers,” he said.

“Reduced consumer access to repair facilities that are capable of carrying out structural repairs could see more cars being written off unnecessarily, and higher insurance costs for motorists.”