CHICAGO — The American Property Casualty Insurance Association’s latest article, “The New Normal? Auto Insurers Continue to Struggle with Inflation,” shows how auto insurance claims inflation continues to outpace the underlying price index at consumption at a much faster rate than premium increases.
Here are some key points from the document:
- Rising litigation and medical costs continue to impact auto insurance losses.
- The increased severity of injury claims compensates for the reduced frequency.
- There is a continuous increase in auto repair, car rental and vehicle replacement costs.
- The increasing frequency of vehicle damage claims multiplies the inflation of repair costs.
APCIA research shows the significant impact of inflation on loss ratios, which reached their second highest level in more than 20 years, reaching 78.4% for the second quarter of 2022. Meanwhile , driving behavior continues to deteriorate.
“Rising loss ratios are a shock to some,” said Robert Passmore, department vice president, Personal Lines for APCIA. “At the start of the pandemic, auto claims costs briefly dropped due to a significant drop in the number of kilometers driven, leading to fewer accidents and fewer claims to be paid. However, that was short-lived and as stay-at-home orders were lifted and restrictions eased, miles driven quickly returned to pre-pandemic levels. Now, data from the US Department of Transportation indicates that Vehicle Miles Traveled (VMT) from 2022 (Jan-May) shows the VMT to be within 1% of the pre-pandemic VMT level for these same five months in 2019.”
With the highest inflation in 40 years, insurance claims costs continued to rise faster than the underlying consumer price index, far outpacing premium increases. In addition. the National Highway Traffic Safety Administration (NHTSA) projects that approximately 42,915 people died in traffic accidents in 2021, an increase of 10% from 38,824 deaths in 2020. “This is the highest number highest fatality rate since 2005, and the highest annual percentage increase in the history of the Fatality Analysis Reporting System,” Passmore said.
The APCIA article finds that increasing claims frequency multiplies the impact of inflation on auto insurance claims costs. “For car insurers, the increasing frequency of claims, coupled with significantly higher car repair and replacement costs, has had a significant impact on car insurance costs. Since 2017, claims severity for vehicle damage, which includes property damage liability and collision coverages, has increased by nearly 41% in the first quarter of 2022.”
While many would expect auto claims costs to normalize as driving levels return to more traditional levels, other trends have emerged pushing costs higher, leading some to speculate. ask if this is the new normal for car insurance.
“The jury is still out on whether this is the new normal for car insurance, however, most indicators suggest that high car repair and replacement costs will stretch into 2023 and potentially beyond,” Passmore said. “Medical inflation is also accelerating and as insurers continue to monitor the situation closely, the frequency and severity of claims continue to increase, impacting injury and vehicle costs. As a result, insurers may be forced to pass these costs on to policyholders.
To address these trends, “insurers strongly encourage drivers to minimize their risk by avoiding risky driving behaviors that could result in a claim. Insurers are also advocating for better infrastructure, including reliable supply chains for essential auto parts and safer roads, which should lead to fewer accidents and lower claims costs that help maintain premiums. affordable insurance for consumers.
The American Property Casualty Insurance Association (APCIA) is the leading national trade association for home, auto and business insurers. APCIA promotes and protects the viability of private competition for the benefit of consumers and insurers, with a heritage dating back 150 years. APCIA members represent all sizes, structures, and regions, protecting families, communities, and businesses in the United States and around the world.