Auto Insurance Costs Surge Due to Tech, Labor, and Risky Behaviors
New technologies and increasing labor expenses are putting significant pressure on auto insurance providers and vehicle repair shops. This trend is leading to more expensive repairs and extended repair times, according to a recent report. The bottom line? While modern vehicles offer enhanced safety features to prevent crashes, the advanced technology integrated into these vehicles is a primary factor in driving up repair expenditure, raising claim costs, and extending the time needed for repairs.
CCC Intelligent Solutions Inc., a cloud-based company serving the property/casualty insurance industry, published the report for Q1 2024. The report is based on data from 300 million claims-related transactions along with bodily injury and personal injury protection claims from CCC’s customers. These trends are evident in the 60% rise in time required for vehicles to enter repair facilities following estimate completion, contrasted with pre-pandemic levels.
Kevin Shumate from Crawford & Co. stated that the report reflects ongoing alterations in auto repair and claims, which are creating significant shifts within the sector. Robert Passmore from the American Property Casualty Insurance Association echoes this, stating the CCC report validates escalating claim expenses experienced by insurers. Passmore highlighted the direct correlation: rising auto insurance premium costs are a result of the increasing expense of the components that comprise auto insurance. Claims and expenses in 2022 surged to over $1.12 for every $1 in premiums.
Insurance Journal May 6, 2024
The report identifies new technologies as a key cost driver, exacerbating repair times, particularly the heightened expenses associated with repairing vehicles equipped with advanced driver assistance systems (ADAS). Today’s vehicles contain a large number of sophisticated elements. Many current models boast 1,400+ semiconductor chips (a number that can nearly double for electric vehicles) and approximately 30,000 parts. Electronics like collision warning systems, driver-assistance technologies, and ADAS account for approximately 40% of a new vehicle’s total cost, as stated in the report. The presence of features such as automatic emergency braking is also increasing.
Electric vehicles (EVs) are becoming common in repair assessments due to the growing number of EVs on the road. EV repairs generally cost more and experience longer repair cycles due to capacity restrictions and intricate repair protocols. The report notes that EVs are totaled less frequently, reflecting changes in valuation practices. In 2013, fewer than 50,000 new EVs were sold. Last year, over 1.2 million were sold. EV sales now represent 1.9% of repairable appraisals, and the differential in repair costs between EVs and non-EVs is roughly 50%.
Data from the International Energy Agency shows that 14% of all new vehicles sold globally were electric in 2022, up from about 9% in 2021. The IEA predicts 14 million EV sales by the conclusion of 2023.
The proliferation of EVs is coupled with escalating labor costs. Labor hours per claim are higher for newer models, many of which are electric vehicles; this difference has grown by almost 40% over the past decade. Labor now makes up 45.5% of total repair expenses for EVs three years old or newer, versus 35.9% for comparable non-EVs, according to the report.
Collision repair labor has been increasing for the past two years and may continue to rise. Demand for new collision technicians is predicted to reach 20,000 annually until 2027, with 75% of those positions being replacements. Compounding the labor shortage is the increasing number of vehicles in operation — an increase of 150 million against a drop of 55,000 in the number of service bays, the CCC report reveals.
Another emerging trend is the supplement percentage in the claims and repair procedures. The supplement percentage has dramatically increased, especially for newer vehicles, which adds to the turnaround time. Hidden damage, discovered after an estimate is delivered and repairs are underway, drives costs even higher.
Medical expenses are another contributor to rising auto insurance costs. The severity of claims continues to increase due to substantial increases in medical bills, particularly for procedures like radiology and surgery. The average amount paid out on third-party bodily injury claims is consistently climbing, currently at around $25,000. Despite slowing down in the past year, the cumulative increase over the past four years represents a 35% increase since Q2 2019.
Inflation is clearly a major factor behind price increases. The advanced technology in modern vehicles is also increasing costs. Vehicles with advanced features, such as cameras and sensors, require more replacement parts, higher labor costs, and additional operations for system scanning and calibration. These more costly and complicated repairs frequently require more time, which translates to higher rental vehicle expenses.
Lastly, increased risky behaviors among drivers, such as speeding, distracted driving, and impaired driving, are escalating injury and collision claim expenses, compounding the effects of inflation. Insurers are urging drivers to cut down their risk by steering clear of risky behaviors. “All indicators suggest elevated auto repair and replacement costs will extend well into 2024 and potentially beyond.”
