The American Property Casualty Insurance Association has released a report demonstrating how auto insurance claims inflation continues to outpace the underlying consumer price index at a rate much faster than increases in premiums.
The research conducted by APCIA also notes the significant impact inflation is having on loss ratios, which climbed to its second-highest level in more than 20 years, reaching 78.4% for Q2 of 2022.
Robert Passmore, department vice president, Personal Lines for APCIA, commented, “The jump in loss ratios is a shock to some. Early in the pandemic, auto loss costs briefly dipped due to a significant decline in miles driven, leading to fewer accidents and 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, the U.S. Department of Transportation data indicates vehicle miles travelled (VMT) from 2022 (January-May) shows VMT is within 1% of the pre-pandemic VMT level for those same five months in 2019.”
APCIA’s paper observes that the now increasing frequency of claims coupled with significantly higher auto repair and replacement costs has heavily impacted auto insurance costs, adding that since 2017, claim severity for vehicle damage, which includes property damage liability and collision coverages, increased nearly 41% as of the first quarter of 2022.
Passmore said, “The jury is still out as to if this is the new normal for auto insurance, however, most indicators suggest elevated auto repair and replacement costs will stretch well into 2023 and potentially beyond.”
“Medical inflation is also accelerating and, while insurers continue to monitor the situation closely, claims frequency and severity continue to rise impacting injury and vehicle costs. As a result, insurers may be forced to pass these costs along to policyholders.”
The paper suggests insurers are strongly encouraging drivers to minimise their risk by avoiding risky driving behaviours that may result in a loss.
It adds that insurers are also advocating for better infrastructure, including reliable supply chains for critical auto parts and safer roads, which the report suggests should result in fewer accidents and lower claims costs that help keep insurance premiums affordable for consumers.
