Why are self-drive hire insurance premiums increasing?

Insurance for the self-drive hire may appear simple at first glance, but it's important to note that policy criteria can significantly differ across businesses within the vehicle rental industry. Due to rising costs, there are many factors that businesses should consider, as they could delay the claims process and incur businesses additional unplanned expenses.

We discuss the main reasons for recent increases in prices for this type of insurance and what your business can do in response.

What is self-drive hire insurance?

This type of specialist insurance covers a vehicle and any drivers or passengers while it is in use under a rental contract. It can insure you against a variety of legal issues such as accidental damage, theft, motor disputes, contract cover and tax investigations. Policies can also cover vehicles even when they aren’t being rented out, for example, if a hire vehicle is vandalised or stolen from your business premises.

Who needs self-drive hire insurance?

If you hire out vehicles to members of the public, then you need self-drive hire insurance by law. Personal car insurance won’t usually cover driving a hire vehicle, and this must be covered by the hire car company. Typically, businesses that operate car or van rental services such as removal van hire, travel car hire, motorhome hire and minibus hire will require self-drive hire insurance.

Reasons for the increase in prices

1. Inability to get car and van repairs

The lasting effects of Brexit and the COVID-19 pandemic have caused a widespread shortage of vehicle parts due to lower rates of production in lockdown and supply-chain issues, causing many manufacturers to stockpile certain parts that can be hard to source¹. This means that auto repair companies may struggle to obtain the parts necessary for approved insurance claim repairs.

Delays can mean that policyholders may need to use a courtesy car for longer, causing higher-value claims, which in turn drives up the cost of self-drive hire insurance. While accidents and repairs are sometimes unavoidable, looking after your vehicle and ensuring regular checks are undertaken to ensure its longevity and safety can help keep the price of your premium down.

2. Electric Vehicles (EVs) cause an insurance ‘roadblock’

Electric vehicles are also a potential headache for insurers. Similar to petrol and diesel vehicles, the effects of the pandemic have led to the lack of availability of parts, however, on a bigger scale².  Due to the highly expensive nature of electric car parts such as batteries (which on average cost over £7000³) insurers will tend to write off EVs with inoperable batteries as they are more expensive to repair than replace⁴.

Parts for EVs tend to also be more specialised, containing technologies that are integrated into the car’s model. For example, Tesla windscreens require specialist knowledge to replace and must be replaced through a Tesla repair agency⁵. An increasing shortfall of qualified technicians will also cause more price hikes as the popularity of EVs rises⁶.

With regard to EV fleets, it is advised that you open a dialogue with your broker about the risks and provide as much information as you can so that they can accurately assess your situation.

3. Terror attacks and crime

Data indicates that during a cost-of-living crisis, people are more likely to turn to crime as pressure to make ends meet grows⁷. The 2017 attack on Westminster Bridge involved a terrorist driving a van for hire, having a lasting effect on the vehicle hire and haulage insurance industry in response to large pay-outs of those affected⁸.

An increase in car and van rentals being used for ‘county line’ drug dealing – where drug dealers extend their reach beyond urban cities – has also been a contributing factor in recent rising premiums⁹ in addition to rising keyless car thefts, with criminals increasingly staying ahead of the curve of the latest security advancements. Catalytic converters and electric vehicle cables also remain an easy target for today's criminals.

Your insurance broker will advise you on specific terrorism or criminal risks that might affect you and your business.

4. Global shortage of cars and vans

Second-hand vehicle insurance premiums are on the rise due to higher demand resulting from global shortages of new vehicles and manufacturer cutbacks. Claims for older vehicles can also prove difficult as parts may no longer be in production at all, delaying the repair process further.

5. Personal injury claims

The price of personal injury settlements is also increasing due to a steep rise in legal costs caused by inflation and the cost of living crisis¹⁰. This has been further exacerbated by a recent increase in fraudulent rental vehicle claims where the driver claims for a minor incident that did not happen¹¹.

6. Few insurance companies specialise in self-drive hire

The huge variation in size and offering of vehicle-hire businesses is one of the main reasons that not many insurance brokers offer this type of insurance.

NFP’s self-drive hire division has access to a wide market of insurers to shop around on your behalf for your specific self-drive hire insurance needs.