Rising Costs Reshape Auto Insurance and Repair Industries
New technologies and increasing labor costs are significantly impacting the auto insurance and auto repair industries, according to a recent report. Repair costs are climbing, and the time required for repairs is also increasing.
CCC Intelligent Solutions Inc., a cloud operation serving the property/casualty insurance industry, released a report for the first quarter of 2024. The report analyzes data from 300 million claims-related transactions, alongside bodily injury and personal injury protection/medical payments casualty claims from CCC’s customers. This data reveals significant trends reshaping the industry.
Longer Repair Times
The report indicates that the time it takes for vehicles to enter repair shops after an estimate is completed has increased by 60% since before the pandemic. Vehicle services vice president Kevin Shumate of Crawford & Co. stated that the report accurately reflects ongoing changes within the auto repair and claims landscape.
Increasing Costs
Robert Passmore, department vice president for policy, research and international for the American Property Casualty Insurance Association, noted that the CCC report validates the rising claims costs insurers face daily. “Auto insurance premiums have been on the rise for the simple reason that the cost of what goes into auto insurance has been rising,” Passmore explained. He added that in 2022, auto insurance claims and expenses surpassed $1.12 for every dollar in premium.
Technology as a Key Driver
New vehicle technologies are a major factor in rising costs and longer repair times. Vehicles with advanced driver assistance systems (ADAS) require more complex and costly repairs. The report highlights that many modern passenger vehicles contain over 1,400 semiconductor chips (this number can be nearly double for electric vehicles) and approximately 30,000 parts. These electronic components currently account for 40% of a new vehicle’s overall cost.
The prevalence of safety features such as automatic emergency braking (AEB) continues to increase. According to the report, AEB-equipped vehicles made up about a quarter of U.S. automakers’ total production in 2017, growing to 60% by 2019 and reaching 95% by 2023.
Electric Vehicle Impact
Electric vehicles (EVs) are becoming more common in repair assessments as the number of EVs on the road increases. EV repairs are generally more expensive and have longer repair times due to specialized procedures and capacity constraints. EVs are also totaled less frequently, reflecting changing valuation trends, according to the report. EV sales now account for 1.9% of repairable appraisals, with the average repair difference between EVs and non-EVs being roughly 50%, according to the report. Sales of EVs have dramatically increased; there were fewer than 50,000 new EVs sold in 2013, while over 1.2 million were sold last year.
Labor Costs and Shortages
Increased labor costs are compounding the impact of EVs. The report reveals that labor hours per claim are higher for newer models, as a growing number are EVs, a difference that has grown by nearly 40% over the last 10 years. Labor now accounts for 45.5% of total repair costs in EVs three years old or newer, compared with 35.9% for comparable non-EVs.
Other Factors
Several other factors contribute to the rising costs. Additional supplemental claims discovered after an initial estimate is provided and repairs are undertaken are increasingly common, especially on complex vehicles, which adds to cycle time, and higher parts costs are impacting repairs. Medical expenses are also a major driver, with costs for procedures like radiology and surgery continuing to climb. Additionally, inflation is having an effect on the overall expense of repairing and replacing cars. Finally, recent reports show that more people are engaging in dangerous behind-the-wheel behavior like speeding, distracted driving, and impaired driving, which boosts claims costs. Passmore predicts that “elevated auto repair and replacement costs will stretch well into 2024 and potentially beyond.”
Insurers are recommending that drivers behave responsibly by staying focused while driving and driving safely.
