The American Property Casualty Insurance Association (APCIA) released a white paper this week examining how auto insurance is impacted by inflation.
The paper, entitled “The New Normal? Auto Insurers Continue to Struggle with Inflation,” finds that insurance claim costs have continued to rise faster than the underlying consumer price index, far outpacing increases in premiums. Further, the National Highway Traffic Safety Administration (NHTSA) projects that an estimated 42,915 people died in motor vehicle traffic crashes in 202i, which is the most since 2005.
As a result, inflation is having on loss ratios, which reached 78.4 percent for the second quarter of 2022. This is the second-highest level in more than 20 years.
“The jump in loss ratios is a shock to some,” Robert Passmore, department vice president, Personal Lines for APCIA, said. “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 indicate vehicle miles traveled (VMT) from 2022 (January-May) shows VMT is within 1 percent of the pre-pandemic VMT level for those same five months in 2019.”
The paper also said the increasing litigation costs and medical expenses continue to impact auto insurance losses. In addition, the increasing injury claim severity is offsetting reduced frequency. It also noted a continuing rise in auto repair, car rental, and vehicle replacement costs.
The increasing frequency of claims and significantly higher auto repair and replacement costs have impacted auto insurance costs.
“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,” Passmore said. “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.”
Insurers are encouraging drivers to minimize their risk by avoiding risky driving behaviors, and they are also advocating for better infrastructure.
The American Property Casualty Insurance Association (APCIA) is the primary national trade association for home, auto, and business insurers.