A Study: The Auto Insurance Crisis

The American Property Casualty Insurance Association (APCIA) just released a study on rising auto insurance rates and the problems rising costs are causing. Auto Insurance: The Uncertain Road Ahead points out that the combination of increasing inflation and claims inflation are driving auto insurance losses and combined ratios to worrisome levels.

Auto insurance losses are rising faster than the consumer price index and are going up faster than the increases auto insurers are initiating.

How bad is it? Robert Passmore is a department vice president for the APCIA and co-authored the study. He says miles driven are not going back to pre-COVID levels and aren’t likely to get back there. That’s because more people are working from home and those that aren’t are finding alternative ways to get to work because of high gas prices.

However, even though we’re driving few miles, Passmore said the average cost per claim for property damage liability and collision jumped 50% between 2018 and 2022.

Inflation is at work there. Higher labor costs, auto repair costs, inflation itself, and auto thefts have jacked up prices.

Bodily injury claims are rising to unprecedented levels, too. Passmore points out that they are up 40% because of inflated medical costs and a dangerous rise in deadly auto crashes.

Making things worse are trial lawyers abusing the legal system.

“In addition to inflation trends, the private passenger auto insurance sector is also experiencing several other trends, such as increased frequency and severity of claims cost, riskier driving behavior by the public, cost increases for medical and hospital services, and outsized growth in lawsuit verdicts and legal system abuses, that are negatively impacting and pressuring the industry with increased losses,” Passmore said.

Losses on underwriting in 2022 for P&C insurers hit $25.6 billion in 2022. That is more than double 2021 losses and is the biggest hit the industry has taken since 2011.

The ability of insurers to absorb those claims is also a big concern. The padding fell by $73.1 billion in 2022. It’s a 6.9% drop from 2021 and the largest decline insurers have seen since the Great Recession of 2008.

Passenger auto had the highest direct loss on all major lines of business at 80.2%. That’s a 12.2% increase over 2021 and a 24.1% increase when compared to 2020. On the other hand, increases for personal auto insurance rose just 6%. That’s way down from the 24% of losses experienced by auto insurers.

Passmore also said repair and maintenance costs for autos jumped 2% in June of 2022 alone. That’s the biggest increase seen in 50 years.

“All indicators suggest elevated auto repair and replacement costs will stretch well into 2023 and potentially beyond. Medical inflation is also accelerating,” Passmore noted. “Although insurers continue to monitor the situation closely, as claim costs continue to rise, insurers may be forced to pass these loss costs along to policyholders. Given the trends, insurers are strongly encouraging drivers to minimize their risk by avoiding risky driving behaviors that may result in a loss. Insurers are also advocating for better infrastructure, including reliable supply chains for critical auto parts and safer roads, which should result in fewer accidents and lower claims costs that help keep insurance premiums affordable for consumers.”

Source link: Carrier Management — https://bit.ly/473llPS

About PIA Western Alliance

The Professional Insurance Agents Western Alliance is a membership organization promoting and enhancing the success of independent agencies seeking to grow, learn and be heard within the industry.


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