There’s good coverage in the Herald this morning providing a plain-English explanation on the current squeeze in the collision repair industry including suppressed labour rates and the resulting critical shortage of skilled technicians. This has been brought about by the sudden escalation in car insurance claims and the dramatic cost increase in repairing those collision damaged cars. Ironically the price increases are not due to the labour shortage or associated cost increases (quite the contrary) but to the very technology that is making those cars safer. Vehicles are now highly sophisticated machines incorporating multiple safety devices in addition to new complex body construction techniques involving a range of steel, alloy, and aluminium parts. Collision repair now involves advanced training and very high technical skills and specialised equipment. It’s a precision undertaking to return vehicles back to manufacturers’ specifications in order to maintain their integrity, value and safety. It was good to see the Collision Repair Association GM Neil Pritchard highlight the point that the labour rates paid by the insurance industry does not reflect the investment required to operation a quality collision repair facility servicing the complexity involved in car insurance claims on new vehicles. Car insurance premiums in NZ are extremely low. The Herald article recognises that the insurance sector has now squeezed all the juice out of the collision repair sector, so car insurance premiums must now rise to meet the reality of the risk and cost of car insurance claims on these new-age vehicles.
“Rising car insurance claims are set to push up the cost of car insurance, with one insurer warning that double digit increases will be on the cards for some. Figures from the Insurance Council of New Zealand show commercial and private motor insurance claims hit $1.023 billion in the year to September 2016 – up nearly $20 million on 2015. At the same time the loss ratio has risen from 69.5 per cent to 74.3 per cent.
John Lucas, a motor insurance expert at the Insurance Council, said increased crash numbers and higher repair prices were behind the increase. “The motor vehicle insurance loss ratios have been increasing due to a combination of an increased frequency of crashes and higher prices to get repaired due to more late model cars with sensor technology being on the roads.” The council doesn’t comment on premium increases but its figures show the gross premiums paid to insurers for vehicles has also been rising.
In 2016 it was $1.64b up from $1.56b in 2015.
Judith Harvey, national portfolio manager private motor at IAG – New Zealand’s largest general insurer – said like other insurers it had experienced an increase in the number and cost of motor claims. Harvey said greater urban migration and changes to New Zealand’s vehicle fleet were behind the increases in claims. “Migration into main cities from other areas in New Zealand and abroad has increased the concentration of cars in the main cities, especially Auckland. “This has increased the number of car insurance claims. Higher traffic densities and prolonged exposure to that means a greater exposure to factors leading to damage.” Harvey said there was also a greater proportion of urban 4WD vehicles which not only caused more damage to other cars but parts were more expensive than a traditionally average vehicle. At the same time new vehicles were making up a larger proportion of all vehicles assessed and this was impacting claim sizes because of expensive technology, use of modern repair techniques and new vehicle owners having a greater tendency to claim.
“These are positive changes to safety which are embraced by the insurance industry, and should eventually reduce the number of accidents and car insurance claims. “However, in the meantime, the new technology comes at a cost. Harvey told Radio NZ that for some people would could mean double digit increases on their insurance premiums.
An AA Insurance spokeswoman said increasing costs of car insurance claims were being reflected in its premiums but increases would be gradual. “Current increasing claims costs – related to the rising cost of car repairs and the current shortage of skilled panel beaters in the industry – are reflected in our premiums. “As these increases are gradual and incremental, customers will not see a large spike in premium costs.”
Neil Pritchard, general manager of the Collision Repair Association, said the industry did have a skills shortage which was almost at “crisis levels”.
The industry had put in a submission to the government asking that panel beaters be added to the skills shortage list for migrant workers. “We are just not keeping up with demand right now.” But at the same time there had been an increase in the number of cars on the road, leading to greater congestion and a record number of new cars were being sold. Around 150,000 new cars a year were being sold plus news models of second hand cars were also coming into the country. “These vehicles do have a lot more collision avoidance technology.” While that meant those vehicles would crash less often when they did it was expensive to fix. That was not because of the time involved in fixing the car but the higher cost of parts, he said. “We are not getting paid a lot more – it’s only the parts.” He said insurers should tailor premium increases so that cars which cost more to fix also cost more to insure. Insurers already tailor premiums around which cars get stolen the most but Pritchard said they didn’t reflect accident and repair costs. “All that stuff is possible. But insurance companies have been slow to pick up on that.” Twenty years ago a wing mirror could cost $70 or $80 to fix but now it could be several thousand dollars depending if it had sensors, cameras or a computer inside it.
And the trend is set to increase. While many believed it was mainly European cars which came with fancy new technology Pritchard predicted within a year or so all new cars would come with anti-collision technology. But at the same time the average age of a car remained 14.5 years which showed there were still a lot of older cars on the road in New Zealand. “Parts have got a lot more expensive but it is not parts across the board.” He said owners of newer cars should wear the costs of higher premiums to cover the increased price of car insurance claims where as older car owners should not have to pay more.”