Market Update – It’s (hopefully) not all Doom and Gloom

 The insurance and wider press are full of negative stories currently with many external factors impacting on the average UK households budgets, as many businesses still struggle to recover from the impacts of the pandemic and Brexit.
Prices have risen sharply in the UK in recent months with the Consumer Price Index reaching a 30 year high of 6.2% In February. Inflation is predicted to hit 8% in April and could go even higher later in the year. As such the ever increasing costs of materials has become a common talking point amongst many industries.

One of the most talked about new stories recently with our commercial constructions clients is the loss of the Red Diesel tax rebates – as of April 2022, Red Diesel will be available only to agriculture and the rail sectors. Users of off-highway construction machinery will have to pay an extra 46.81 pence per litre for their diesel!

This will put significant pressure on the construction industry to reduce costs in other ways or pass that on to the consumer to minimise impact on much needed profits.
Further afield the war in Ukraine has compounded food production costs (the Ukraine’s main export was wheat) and logistical problems, which had already been significantly affected by the pandemic. The sanctions on Russia and Belarus are also likely to have a significant impact on the availability of building materials. Which we are seeing signs of already in the local merchants and construction trades increasing cost forecasts.

Construction and food industries are not the only ones having a bad time of it when things were already considered pretty dire. The loss of a significant number of VW group vehicles in the Felicity Ace fire in the Atlantic has also delayed delivery to customers and there were a number of specialist (irreplaceable vehicles) on the same shipment which will now increase the price and rarity of the remaining ones (Bentleys, Lamborghinis and even a Honda Prelude) at a cost of roughly $155M.

 What does this mean for insurers.

With increases to materials, turnovers and wage inflation the impact on claims costs will also follow. Rebuild values for property insurance will need to reflect the changes to materials and labour, and liability premiums are being adjusted to incorporate wage inflation and the higher costs of living when calculating damages.

The pressure on pricing is still strong as business forecasts aren’t as positive. Many companies are also downsizing their office assets and looking to reduce costs by allowing more flexible and remote working models which present additional challenge for insurers to balance potential risk against premium.

The positives however shine through in some areas.

The NHS continues to fight strongly and the raised awareness of our national pride in the service should protect it from further cuts in the short term.

Serious crime is down, potentially due to the restrictions of lock down (although computer fraud is up which has led to more awareness and enquiries for Cyber insurance cover.)

The motor industry has also seen significant increases in used vehicle values. These prices are set to remain high in 2022 due to continued supply shortages.

We are also seeing a big increase in the so called “side hustle”, or second income where small businesses are set up to run from home leading to innovative products and solutions.

A number of specialist trades are seeing smaller businesses drop out which leads to greater market share and breadth of services – Fire protection and cladding trades particularly although this also results in raised insurance and running costs for them.

Clarke Williams continue to help our clients obtain the right insurance advice and to obtain competitive premiums in the face of increases. The relaxation of covid restrictions has also meant that we can get out and about more to see our clients face to face (with appropriate precautions) and give them much needed support.

Sources:

Bank of England
Autonews
Federation of Master Builders
Motortrader