The Perfect Storm: Why Your Auto Insurance Bill Keeps Climbing
New technologies, increasing labor expenses, and the growing prevalence of electric vehicles are converging to create a perfect storm in the auto insurance and auto repair industries. A recent report from CCC Intelligent Solutions Inc. reveals how these intertwined factors are causing repair costs to skyrocket, claims to take longer, and ultimately, auto insurance premiums to rise.
According to CCC’s analysis of hundreds of millions of claims-related transactions, alongside bodily injury and personal injury protection data, several key trends are reshaping the landscape. The report shows, for example, that the time it takes for vehicles to enter repair shops after an estimate is completed is approximately 60% longer now than it was prior to the COVID-19 pandemic.
Kevin Shumate, Vice President and Managing Director of Vehicle Services at Crawford & Co., agrees with the report’s findings. Robert Passmore, a department vice president at the American Property Casualty Insurance Association, also notes that the CCC report validates the increasing claims costs insurers are seeing.
Technology’s Double-Edged Sword
One of the biggest drivers of increased costs is the advanced technology packed into modern vehicles. While this tech makes cars safer and helps drivers avoid accidents, it also makes repairs more complex and expensive. Today’s vehicles often contain over 1,400 semiconductor chips, with EVs potentially having double that number, alongside roughly 30,000 parts. Electronic components, such as collision warning systems and advanced driver-assistance systems (ADAS), now account for a substantial 40% of a new vehicle’s total cost.
As a result, repairs involve more parts, more labor hours, and complex diagnostic operations, such as scanning and calibration. Furthermore, the increased use of advanced materials in vehicle construction also bumps up costs. Shops are seeing more instances of needing to replace parts rather than repair them, which means technicians need different skill sets, driving up expenses even more. The complexity means that detecting damage upfront is becoming more challenging and leading to an increase in supplemental claims.
The EV Factor
Electric vehicles are becoming increasingly common on roads, and their presence is significantly impacting the repair industry. EV repairs are more expensive and take longer, due to capacity constraints and precise repair procedures. While EVs are totaled less often, reflecting evolving valuation trends, their repair costs are roughly 50% higher than those for non-EVs, according to the report.
Sales of EVs have exploded in recent years. In 2013, fewer than 50,000 new EVs were sold. By last year, that number had surged to over 1.2 million. EV sales now account for 1.9% of repairable appraisals.
Labor Shortages and Rising Costs
The industry is also grappling with rising labor costs. Labor hours per claim are higher for newer models, with EVs contributing significantly to this trend. Over the last decade, this difference has increased by nearly 40%. Labor now accounts for 45.5% of total repair costs in EVs three years old or newer, compared to 35.9% for comparable non-EVs.
Compounding labor issues is a growing number of vehicles on the road. Reports show an increase of 150 million vehicles. A shortage of service bays and the demand for new collision technicians are exacerbating the problem. These technicians are retiring or exiting the workforce. Demand for new collision technicians is expected to reach 20,000 per year through 2027, which is 75% of current positions needing to be replaced.
Hidden Damage and Supplemental Claims
The complexity of modern vehicles often leads to the discovery of hidden damage after an estimate is delivered, resulting in supplemental claims, which also add to the cost and length of repairs. Shumate explained that multiple supplements on a single vehicle are becoming increasingly common, extending cycle times. Parts availability also contributes, forcing shops to find alternative parts or source them internationally, thus impacting costs and repair duration.
Medical Expenses and Other Factors
Medical expenses represent additional cost drivers. Despite a decline in treatment durations since 2021, the severity of medical claims continues to increase, especially with high-dollar procedures like radiology and surgery.
Inflation has significantly impacted the cost of repairing and replacing cars. Passmore of APCIA said that the increasing technological sophistication of today’s vehicles is also contributing to rising costs. Vehicles with advanced technology, like cameras and sensors, require more parts to be replaced and calibration of systems, therefore increasing costs.
Finally, risky driving behaviors, such as speeding, distracted driving, and impaired driving, further compound the issue. Insurers urge drivers to reduce their risk by driving safely, which may lead to fewer collisions and claims. The industry anticipates elevated auto repair and replacement costs will continue in 2024 and potentially beyond. The trend is clear: auto insurance premiums are unlikely to decrease soon.
