A spotlight on motor insurance claims costs

The Financial Conduct Authority (FCA) published its analysis on motor insurance claims in July 2025.

The analysis finds that over 44 million policies were sold in the UK in 2024 with total premiums of over £20bn.

However premiums increased significantly between 2022 and 2024 (although data collected by the ABI shows a slightly improved picture with average premiums falling by 2% in Q1 and Q2 of 2024).

Based on “data from 12 insurers representing over 50% of the UK private motor insurance market, increases in motor insurance premiums between 2022 and H1 2024 are largely due to increases in claims costs.”

Key contributors to claims costs

With many insurers turning away from the motor sector altogether or changing their underwriting approach, the FCA analysis identifies several areas contributing to the cost of claims and therefore increased premiums for policyholders. A high level overview of these is set out below:

Vehicle repair costs

• Longer lead and repair times.
• More expensive and complex vehicles.
• Limited availability and rising costs of skilled labour.

Replacement vehicles

• The cost of replacement vehicles has increased significantly despite lower numbers of notified claims, accounting for 10% of the overall increase in total claims costs between 2019 and 2023.

Bodily injury claims

• The cost of increased bodily injury claims accounts for 8% of the overall increase between total claims costs between 2019 and 2023.
• There is growing evidence that some claimants are exaggerating or and fabricating some minor injury claim types.
• Increase in use of e-scooters and e-bikes resulted in uninsured riders causing circa £50m in bodily injury costs annually.

Theft

• The cost of theft has risen accounting for 10% of the overall rise in claims costs between 2019 and 2023.
• This is due to higher value vehicles and theft claim frequency.
• Technology used to steal cars is readily available.

Fraud

• Fraud also continues to have a large impact on motor insurance claims.

Claims process outsourcing

• The involvement of third parties such as accident management companies and claims handling organisations can add complexity and therefore additional costs to the claims process.

The analysis does not delve into the impact that e-vehicles may have had on the market. These vehicles tend to be expensive to replace and expensive to repair. 

As the Government continues with its policy to ban the vehicles with an internal combustion engine (at the time of writing by 2030), the trajectory based on current data is therefore a continuing rise in claims costs and insurance premiums unless a multi-faceted approach to combat this is implemented.

Fraud: Confirmed cases on the rise

Fraud is a particularly interesting area. The FCA analysis found that whilst suspected fraud has declined, confirmed cases has risen. This suggests that the industry has got better at detecting fraud or fraudsters are using increasingly sophisticated tactics to evade early detection.

With all the noise about AI nowadays, one might be forgiven for thinking that this is the only way to commit fraud in modern times. Yet this is not necessarily the case as is illustrated by recent criminal proceedings taken by the Information Commissioner against eight individuals. They were suspected of having stolen data from over 400 body repair garages which used software called Autoflow.

The suspects sold this data to claims companies and used heavy handed tactics to persuade the data subjects to bring insurance claims. While technology still had a role to play, ultimately the fraud was able to be conducted by having employees on the “inside”. The individuals made over £3m.

This demonstrates that while businesses must continue to evolve and adapt to respond to new and emerging threats, they must also not forget to take their eye off some traditional threats.  

What role can technology play to combat rising claims costs?

Technology can provide solutions to the factors contributing to the rise in claims costs. For instance, AI technology can streamline vehicle maintenance and repair processes, making them less complex and costly. 

3D printing can lessen dependency on traditional supply chains for parts, reducing repair times and costs.

Automation and digital supply chain management can mitigate skilled labour shortages and supply chain delays by enhancing manufacturing and repair efficiency. 

Advanced anti-theft systems can significantly reduce vehicle theft while AI-powered surveillance and remote vehicle immobilisation technologies can also deter theft and aid in the recovery of stolen vehicles. 

Machine learning algorithms can effectively detect fraudulent activities, and sophisticated digital documentation processes can minimise the risk of fraudulent claims. insurance practices.

What’s next?

In the Crime and Policing Bill, the Government is banning electronic devices used for car thefts. Theft of vehicles using electronic devices (such a signal jammers) are thought to play a part in four out of 10 vehicle thefts nationwide.

Also, on 16 October 2024, the Government established the Motor Insurance Taskforce. The Taskforce brings together industry representatives, consumer organisations and regulators including the FCA.

It is hailed by the Government as a “major step forward in getting a fair deal for UK drivers by rooting out factors that increase costs for the car insurance industry.” The Government also didn’t fail to point out that the factors contributing to increased premiums include the “country’s pothole-ridden roads”.

While we understand that the Taskforce is still alive, we are yet to hear as to next steps. As the cogs continue to whir in the machinery of Government, it may yet again be for the insurance industry to tackle the issue through innovation.