A new study, “Auto Insurance: The Uncertain Road Ahead,” released July 19 by the American Property Casualty Insurance Association (APCIA), revealed insurance claims inflation has continued to rise faster than the underlying consumer price index (CPI), far outpacing increases in auto insurance premiums.
The combination of rapidly increasing overall economic inflation and claims inflation has driven up auto insurance losses and combined ratios.
“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,” said Robert Passmore, department vice president for APCIA and co-author of the paper.
Key Data Findings
APCIA found that losses on underwriting in 2022 for private U.S. property casualty insurers were $25.6 billion, more than double the losses in 2021 and the worst result since 2011.
Private passenger auto insurance experienced the highest direct loss ratio among major lines of business at 80.2% (excluding loss adjustment expenses) in 2022, which represented an increase of 12.2 points from 2021 and 24.1 points from the low-water mark of pandemic-impacted 2020.
U.S. private passenger vehicle damage claim severity (i.e., the average cost per claim for property damage liability and collision) increased nearly 50% from 2018 to 2022, impacted by rising auto repair and labor costs, inflation and theft rates, among other things. Over the same period, average bodily injury claim severity increased 40%, reflecting an acceleration in medical inflation, legal system abuse and a sharp increase in deadly motor vehicle accidents.
Property casualty insurers’ premiums for personal auto increased just 6% for the year, far below the 24% rate of escalating losses.
The Motor Vehicle Insurance CPI compiled by the U.S. Bureau of Labor Statistics includes a basket of goods and services auto insurers require to settle claims, and the June figure was up 6% year-over-year, accelerating from May’s 4.5% increase. It was the sixth-straight monthly increase.
“All indicators suggest elevated auto repair and replacement costs will stretch well into 2023 and potentially beyond,” said Passmore. “Medical inflation is also accelerating. 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," Passmore continued. "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: American Property Casualty Insurance Association