Auto Claims Inflation Moves Past Auto Insurance Premium Increases

Auto insurance claims inflation has outpaced the growth of auto insurance premiums, driven by rising overall economic inflation and claims-related costs, according to a recent study by the American Property Casualty Insurance Association (APCIA), titled “Auto Insurance: Navigating Uncertain Terrain.”

The APCIA, a national trade association representing home, auto, and business insurers, revealed that the combination of escalating economic inflation and claims inflation has led to increased auto insurance losses and combined ratios. Despite a reduction in miles driven due to factors like high gas prices and continued work-from-home policies, the severity of U.S. private passenger vehicle damage claims has surged by almost 50% from 2018 to 2022. This rise has been fueled by higher auto repair and labor expenses, increased inflation, and theft rates.

Over the same timeframe, the average severity of bodily injury claims also rose by 40%, primarily due to a surge in medical inflation, misuse of the legal system, and a notable increase in fatal motor vehicle accidents. The report emphasized the impact of various trends, including elevated claims costs, riskier driving behavior, soaring medical and hospital service expenses, and a surge in lawsuit verdicts and legal abuses.

Robert Passmore, Vice President at APCIA and co-author of the report, highlighted, “In addition to inflation trends, the private passenger auto insurance sector is also experiencing several other trends… that are negatively impacting and pressuring the industry with increased losses.”

APCIA’s research disclosed that underwriting losses for private U.S. property/casualty insurers in 2022 reached $25.6 billion, more than double the 2021 losses and the highest recorded since 2011. The aggregate net worth of the U.S. property/casualty insurance industry, which acts as a financial buffer against unexpected high claims costs and catastrophic events, dropped by $73.1 billion in 2022, a 6.9% decrease from 2021.

The report also highlighted the dramatic growth in individual lawsuit verdicts across all sectors, contributing to what was termed “lawsuit inflation.” In 2022, private passenger auto insurance witnessed a direct loss ratio of 80.2%, marking a 12.2-point increase from 2021 and a 24.1-point surge from 2020. This comes against the backdrop of a modest 6% increase in personal auto premiums for the year, falling significantly short of the 24% rise in escalating losses.

The study also revealed that auto repair and maintenance costs experienced their largest increase in nearly fifty years, with a 2% rise observed in June 2022. The complexity of modern vehicles was cited as a key factor driving up repair costs. APCIA’s findings indicate that the elevated costs associated with auto repairs and replacements are likely to persist well into 2023 and potentially beyond.

Robert Passmore emphasized the need for insurers to consider passing on these increased loss costs to policyholders as claim expenses continue to climb. To mitigate these challenges, insurers are urging drivers to adopt safer driving practices and advocating for improved infrastructure, including dependable supply chains for critical auto parts and safer road systems. These measures are aimed at reducing accidents and ultimately helping to maintain affordable insurance premiums for consumers. Source: https://www.insurancejournal.com/news/national/2023/07/24/731736.htm