Vehicle parts make up the bulk of accident repair costs

The cost of repairing motor vehicles is often mentioned as one of the main reasons why short-term insurance companies are struggling. When the cost of vehicle repair and other short-term claims are on the rise, the underwriting margin feels the pinch and bottom-line profitability suffers. And that makes it important to assess how dire the motor vehicle repair situation really is.

Short-term insurance quotation software supplier, Audatex provides some useful insight into the world of motor vehicle repairs in the July 2008 SAIA Bulletin. Ingo von Boetticher, managing director of the company for more than 10 years, shares some of the statistics the company has gathered since 2004. His analysis gives an idea of how vehicle repair costs compare with inflation over the last three-and-a-half years.

Average repair costs track inflation

Overall it seems that the average vehicle repair costs have moved largely in line with inflation. This revelation makes somewhat of a mockery of short-term insurers’ repeated claims that the rising cost of motor vehicle parts are driving up the cost of motor vehicle repairs. According to Audatex, the average repair cost per accident in 2004 stood at R12 122. The year-on-year percentage increase in this cost was 6.6% in 2005, increasing the average cost per accident to R12 922. In subsequent periods the average cost per accident increased to R13 793 (+6.7%) in 2006, to R15 558 (+12.8%) in 2007 and in the first six months of 2008 to R15 558 (+8.5%). These numbers exclude vehicles which are uneconomical to repair.

“Of interest is the fact, that while the average repair cost was almost always way above any other index, it has dropped in 2008 for the first time below corresponding CPI, CPIX and PPI,” says Boetticher. But how does the data match actual insurance claims? We’ve recently received a R7 500 quote to repair a cracked (not even dented) rear bumper. The reason for the huge price being the replacement bumper from the original equipment parts warehouse.

And anyone driving a late model vehicle will probably have a heart attack on the spot if they had to replace a headlamp cluster out of their own pocket. Surely the spiralling cost of replacement parts would be pushing op motor accident repairs at a higher rate than inflation? No so, says Boetticher.

Repair cost inputs remain constant

Over the years the composition of vehicle accident repair charges has remained fairly constant. Audatex reports that 60% goes to parts, 10% to pain and other materials, and 30% to labour. With parts making up the bulk of the cost Audatex thought it appropriate to compare the price movement in replacement parts with the rand’s performance against some of the major international currencies, including the dollar, yen and Euro. And the graph they provided makes for some interesting reading. Audatex notes that: “The drop in the value of the Rand versus the main trading currencies seemingly has a direct impact on the repair cost, as shown from 2006 onwards. However, in 2004 and 2005 the strength of the Rand did not result in a decrease in the average repair cost – so who is fooling who?”

In another interesting exercise the company runs an accident repair cost simulation across 1 000 ‘simulated’ accidents. Using there data model Audatex says there is “no reason for the average repair cost to keep rising, when even parts cost manage to reduce over the 2006/2007 period.”

Does this mean short-term insurers will find things ‘easy going’ in the motor vehicle business? Recent comments from the country’s leading insurers are anything but promising. It seems underwriting margins remain under pressure – and that means that escalating costs are eating in to the premiums charged. Perhaps if the many vehicles which were written off (scrapped) as uneconomical to repair were included in the statistics we’d see a different picture.

Editor’s thoughts:
For some time we’ve listened to the major short-term insurers tell us that soaring part prices are chasing up the price of motor vehicle repairs. Data from actual repairs seems to contradict this view. There might be an argument that rising prices make more vehicles uneconomical to repair; thus rendering the above statistics meaningless… Do you believe that motor vehicle repair costs are rising in excess of inflation? Add your comment below, or send it to [email protected]

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