The American Property Casualty Insurance Association (APCIA) released a white paper this week examining the impact of inflation on auto insurance.
The article, titled “The New Normal? Auto insurers continue to battle inflation,” finds that insurance claims costs have continued to rise faster than the underlying consumer price index, far outpacing premium increases. Additionally, the National Highway Traffic Safety Administration (NHTSA) projects that approximately 42,915 people died in traffic crashes in 202i, which is the highest since 2005.
As a result, inflation is impacting claims ratios, which reached 78.4% in the second quarter of 2022. This is the second highest level in over 20 years.
“Rising loss ratios are a shock to some,” said Robert Passmore, department vice president, Personal Lines for APCIA. “At the start of the pandemic, auto claims costs briefly declined due to a significant drop in the number of kilometers driven, leading to fewer accidents and fewer 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, data from the US Department of Transportation indicates that Vehicle Miles Traveled (VMT) from 2022 (Jan-May) shows the VMT to be within 1% of the pre-pandemic VMT level for these same five months in 2019.”
The newspaper also says that rising legal and medical costs continue to impact auto insurance losses. In addition, the increasing severity of injury claims compensates for the reduced frequency. He also noted a continued increase in auto repair, car rental and vehicle replacement costs.
The increasing frequency of claims and significantly higher vehicle repair and replacement costs have impacted auto insurance costs.
“The jury is still out on whether this is the new normal for car insurance, however, most indicators suggest that high car repair and replacement costs will stretch into 2023 and potentially beyond,” Passmore said. “Medical inflation is also accelerating, and while insurers continue to monitor the situation closely, the frequency and severity of claims continue to increase, impacting injury and vehicle costs. As a result, insurers may be forced to pass these costs on to policyholders.
Insurers encourage drivers to minimize their risk by avoiding risky driving behavior, and they also advocate for better infrastructure.
The American Property Casualty Insurance Association (APCIA) is the leading national trade association for home, auto and business insurers.