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25/01/2022

Why Premiums Increase

Facts and Figures via Discovery Insure

The effects of the COVID-19 pandemic have changed the lives of everyone globally. Since March 2020 the world has endured much suffering and is now starting to adjust to this "new normal". 

One of the ongoing effects that we have endured over this time is the impact on the supply of vehicles, vehicle parts and paint globally. Paint prices alone have increased by 9% since last year. At the same time, the world is experiencing a severe shortage of semiconductors and microchips used in the production of vehicles. Furthermore, constraints in shipping and global transportation have resulted in an escalation in the cost and time to procure replacement parts. To highlight the severity of this effect, global shipping costs have increased by 170% during 2021 according to the Drewry World Container Index.

As an insurer that is reliant on these factors, we have experienced this impact firsthand, resulting in a sharp escalation in both vehicle repair costs and the cost of total losses such as write-offs and thefts. We have seen that vehicle repair costs have far outpaced inflation and are up to 9% higher in the last six months alone (resulting in an annualised rate of 18% per annum). The rate of vehicle depreciation from year to year is also lower than historically experienced due to the growing demand for second-hand cars. This is a global phenomenon and has affected vehicle traders and insurers around the world. 

At the same time as vehicle claims have been increasing, we have also seen an unexpected rise in the frequency and value of home insurance claims from building costs to electronic replacement items. As an example, in 2021 we experienced 37% more hours of loadshedding than in 2020, resulting in a 23% increase in power surge claims. 

These global circumstances are unprecedented and far beyond what may be considered normal or allowed for in standard insurance pricing. 

To maintain the same levels of cover and premiums truly in line with risks, we will only increase the premiums of clients who have high loss ratios (over 3 years) through a number of claims experienced. Increasing these clients' premiums helps to keep claims and premium contributions fair between all Discovery Insure clients.

We want to thank you for your continued support and loyalty in these uncertain times and assure you that your clients' cover remains our top priority. 

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