SAN DIEGO, Calif. – During today’s National Association of Insurance Commissioners’ (NAIC) Property and Casualty Insurance “C” Committee meeting, the American Property Casualty Insurance Association (APCIA) presented its latest industry analysis, “U.S. Auto Insurance Market Still Struggling Amid Pandemic.”
“The intersection of an improving economy, increased dangerous driving behavior, rising injury and vehicle costs, increasing litigation, severe supply and demand imbalances, as well as COVID-19 related global shipping challenges are combining to create significant upward pressure on auto insurance pricing,” said David Snyder, vice president of the policy research and international division for APCIA.
“It is important for policymakers and the public to be aware of the latest trends and how they are impacting auto insurance pricing,” said Snyder. “The events that transpired followed the pandemic highlight why it is important for regulators and insurers to maintain a long-term perspective regarding driving and loss trends.”
Key Trend #1: More Drivers and More Dangerous Driving Since the Pandemic Began
One area of concern for insurers is that following a brief decline in miles driven early in the COVID-19 pandemic, drivers have largely returned to the roads, albeit with new more dangerous driving behaviors, such as increased impaired driving, speeding, and failure to wear a seatbelt. These actions have led to more severe accidents, injuries, and fatalities. The National Highway Traffic Safety Administration (NHTSA) reported traffic deaths across the country soared by 18.4 percent in the first six months of 2021 versus 2020, continuing an alarming trend from 2020, when an estimated 38,680 people died in motor vehicle traffic crashes—the largest projected number of fatalities since 2007.
The rise in claims severity is compounded by steadily climbing medical costs. This is occurring at the same time as the cost to repair or replace vehicles has skyrocketed amid severe vehicle and auto parts shortages during the pandemic.
“It is also important to note that in response to the initial decline in driving in 2020, auto insurance carriers returned an unprecedented $14 billion in premium relief to policyholders,” said Snyder. “Additionally, some insurers filed rate reductions, extended billing-related leniency and temporary waivers on ‘commercial use’ exclusions for deliveries of essential items, such as food, groceries, and pharmacy, and provided a range of philanthropic contributions. Insurers have also worked with state regulators to ensure they followed state laws and provided appropriate relief to consumers.”
Key Trend #2: Rising Costs and Supply Chain Challenges are Impacting Insurance Pricing
Demand for new and used vehicles has surged, depleting inventories at dealerships across the U.S and impacting auto insurers’ ability to replace damaged vehicles and provide rental cars when there are extended repair times. At the same time, auto manufacturing remains stalled, driven by semi-conductor chip shortages and ongoing global supply chain issues that have made critical auto parts scarce. The rapid spread of new COVID variants is further stressing supply chains. Auto body repair costs have climbed higher as individual parts become more costly and difficult to source. In addition, there has been a surge in demand to repair older cars creating an industry-wide labor shortage at repair facilities. For auto insurers, the return of higher accident frequency coupled with significantly higher auto repair and replacement costs have heavily impacted auto insurance costs.
The resulting increase in price for new and used vehicles, as well as rental cars, has also contributed to rising inflation--leaving car buyers with fewer and more costly options. These inflationary pressures are also impacting costs for insurers, and they are expected to last well into 2022, if not longer. These trends have pushed industry-wide auto physical damage costs in the third quarter of this year to the highest level in over 20 years.
Key Trend #3: Auto Theft Rates Skyrocket
Increased thefts for autos and auto parts have contributed to rising comprehensive auto insurance costs. According to data from the National Insurance Crime Bureau, auto thefts reached their highest level in a decade in 2020, while catalytic converter thefts were more than four times higher in 2020 than the prior year. These thefts are still accelerating in 2021, and according to one major insurer, converter theft claims rose nearly 293 percent nationwide from mid-2020 to mid-2021.
Key trend #4: Injury Severity Costs Offset Any Reduction in Miles Driven that occurred at the beginning of the Pandemic
More dangerous driving conditions have led to rising accident frequency and injury severity trends. Some of the costs associated with injuries and vehicle costs are driven heavily by the biggest surge in U.S. inflation in thirty years as the economy struggles to reopen following the COVID-19 pandemic. Injury severity trends have been steadily outpacing frequency in recent years. As severity trends continued to accelerate during the pandemic, they largely offset the reduction in miles driven that briefly led to lower accident frequency, as injury liability costs reached the highest level since the fourth quarter in 2018.
Key Trend #5: Outlook Remains Grim as Trends Expected to Persist
All indicators suggest elevated auto repair and replacement costs will stretch well into 2022 and potentially beyond. For example, rental car companies historically have been a major source for used car sales, however, many rental car companies are hanging onto cars longer instead of selling them into the used market. Also, the Great Recession of 2020 has been noted for a reduction in new car sales that results in limiting the availability of affordably priced used vehicles that were trade ins.
“As a result of these trends insurers have increased their call for highway safety,” said Snyder. “We urge drivers to avoid risky driving behaviors, this will reduce their risk of loss and avoid potentially lengthy repair times as vehicle parts become more difficult to source.”