Articles - 2026: The outlook for motor claims inflation

By Anju Bell, Managing Director, Insurance Consulting and Technology and Robert Treen, Director, Insurance Consulting and Technology, WTW

The war in Ukraine beginning in February 2022 resulted in a broad-based energy shock, global shipping disruption and both food and metal price inflation. However, the increase in energy prices over this period was not just driven by the war in Ukraine. Energy prices were already increasing before the invasion: wholesale gas prices increased from $10 per MMBtu in June 2021 to over $30 per MMBtu by the end of 2021, and crude oil prices increased from around $70 per barrel in June 2021 to just under $100 per barrel prior to the invasion. That said, the war in Ukraine did have a further material impact on wholesale gas prices, which particularly impacted the UK with its heavy reliance on gas imports for both direct usage and electricity generation, and on crude oil prices.

In the UK, price inflation started to increase in 2021 Q3, and this in turn led to wage inflation, with the wage inflation peak around six months later than for price inflation.

These effects combined to increase severity by 43% across 2020 to 2023 for Accidental Damage (gross of salvage and subrogation) claims and 48% for Third Party Property Damage claims, an average of 13% per annum and 14% per annum respectively across this period.

We also observed higher large Injury claims frequency in accident years 2022 and 2023 than for pre-COVID-19 years, despite Third Party Property Damage frequency in these years being around 20% lower compared with 2019. This higher large Injury claims frequency is likely a function of higher Injury claims severity inflation than historically observed, pushing more claims above the large claims threshold.

There are a number of similarities to 2021–2023, including that the conflict has caused significant global supply chain disruption and involves a key global energy producer resulting in an energy price shock: in 2022, oil prices peaked at around $125 per barrel and were above $100 per barrel from March to August that year; in 2026, oil prices also peaked at $125 per barrel but have remained below $100 per barrel since June.

Additionally, there are some specific risks to certain materials important to motor manufacture and repair. For example, prices for aluminium, which is extensively used in car parts, increased by around 30% post-conflict, although they fell back to pre-conflict levels in July; and the supply of helium, which is a key material in semiconductor manufacture, has been adversely affected.

However, there are some key differences to 2021–2023:

Furthermore, there is volatility due to the toing and froing of the Middle East conflict peace process, with the inflation risk for UK motor insurers tied to how long and severe the disruption to trade flows of both oil and non-oil commodities through the Strait of Hormuz will ultimately be.

In its July 2026 Monetary Policy Committee report, the BoE considered future UK price inflation under a number of different scenarios. Under the central forecast, CPI is predicted to be 3.0% per annum in 2026, 2.8% in 2027 and 1.8% in 2028, with the 2026 figure being 0.7% points higher than the BoE’s February 2026 forecast. The adverse scenario considered by the BoE assumes a continuation of the conflict, resulting in an energy price shock over the entire forecast period. Under this scenario, CPI is forecast to be 3.2% per annum in 2026, 4.1% in 2027 and 2.8% in 2028, with the 2027 figure being 2.2% points higher than the BoE’s February 2026 forecast.

How these scenarios feed through to motor claims inflation is challenging to assess. For Damage claims, price inflation is a key driver of cost, but there are specific risks that could mean motor claims inflation is higher than price inflation, as occurred in 2022 and 2023. For Injury claims, economic inflation – both price and wage – is likely to be the key driver of claims cost, with less emphasis on other specific risks.

Under the July 2026 central BoE forecast, it is reasonable to assume that the higher CPI inflation in 2026 and 2027 will directly lead to higher motor Damage claims inflation but that any supply chain disruption will not have a material impact. For Injury claims, which have a longer duration, the CPI forecast of 3.0% per annum in 2026 and 2.8% per annum in 2027 is close to the average CPI during 2024 and 2025, and so it is reasonable to assume no material impact. Overall, this scenario could result in claims severity inflation in 2026 and 2027 of around 0.75% points higher than pre-conflict expectations.

Under the July 2026 BoE adverse scenario, it is likely that Damage claims inflation will increase by more than price inflation as a result of:

For Injury claims, we expect costs to increase in line with CPI, but we would expect a delay in this manifesting in claims cost, particularly for those elements of cost most closely impacted by wage inflation. Overall, this scenario could result in claims severity inflation in 2026 of around 1.5% to 3.0% points higher than pre-conflict expectations, with severity inflation in 2027 of around 2.5% to 4.5% points higher.

There may, of course, be some offset to these excess inflation impacts through lower frequency – higher petrol and diesel prices leading to reductions in the number of miles driven – although we do not envisage that this effect will be material. Over a slightly longer timeframe, claims inflation at a portfolio level may be impacted if the increase in energy prices hastens the transition to electric vehicles.

What does this mean in practice?

“Wait-and-see” is not a neutral assumption: it assumes a fairly quick and complete resolution, which world events and the early impact on UK price inflation are already showing to be unrealistic.