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Inflation, ongoing supply chain issues and costly car accidents set the stage for auto insurance costs to rise in 2023.
At the height of the pandemic, with greatly reduced driving, accidents and claims also fell. Now drivers are back on the road, and the resulting accidents are costing far more in auto insurance claims thanks to higher parts, labor and medical bills.
The rising cost of auto insurance is the top trend auto insurance shoppers can expect in 2023, and here are the major contributing factors.
Inflation catapults car insurance costs higher
The Consumer Price Index (CPI) saw a 7.7% increase for the 12-month period ending in October 2022. The CPI saw its largest 12-month increase in 40 years , in June 2022, when the CPI increased by 9.1%.
The cost of food, housing, energy and other everyday items, including car insurance, are assessed for the CPI, which helps measure inflation and track its rate of inflation. variation over time.
The cost of car insurance rose 1.7% from September to October 2022, the seventh consecutive one-month increase. And car insurance prices year over year rose 12.9%, according to CPI data. Compared to September 2020, car insurance costs have increased by an incredible 19.9%.
A new report from the American Property Casualty Insurance Association (APCIA), a trade group of property and casualty insurers, examined auto insurance companies’ struggle with inflation. The APCIA says insurance claims costs are rising faster than the CPI and outpacing rate increases by auto insurance companies. Because auto insurance companies feel behind the times, expect them to pursue further rate increases in 2023 as they try to catch up.
“One of the big concerns for consumers for 2023 is the relentless pace of auto insurance rate increases,” says Douglas Heller, director of insurance at the Consumer Federation of America.
Auto insurance company rate increases have already been approved or filed with state regulators, but they’re only just beginning to roll out. Heller expects drivers to see significant rate increases when renewing their policies — or buying new auto insurance — over the next six to nine months.
Serious car accidents result in costly medical claims
People are back on the road and driving more than ever. Data from the Federal Highway Administration shows that 43.2 billion miles were traveled by vehicles in the first half of 2022, an increase of 2.8% compared to the same period in 2021.
More miles driven give drivers a greater chance of having an accident. National Highway Traffic Safety Administration (NHTSA) estimates for the first quarter (January to March) of 2022 show 9,560 deaths in car crashes, the highest number of deaths in the first quarter of a year since 2002. This represents a 7% increase in deaths. compared to 2021.
The APCIA points out in its report that the frequency of injury claims has decreased by almost 25% in recent years, but the severity of injuries has skyrocketed by almost 40%. This increases insurance payouts for injury claims, and it will eventually be passed on to all drivers in the form of auto insurance rate hikes.
According to the APCIA, the average cost per claim (known as loss severity) reached $5,743 in the first quarter of 2022. This is a new record and 36.5% more than in first quarter of 2020. Meanwhile, car insurance companies have raised their car insurance rates by just 4.6%.
There is a glimmer of hope that a reversal in the trend of car accident deaths is occurring. NHTSA estimates for the second quarter of 2022 (April to June) show a 4.9% decrease in fatal car crashes from 2021. If the number of serious crashes begins to decline, it is possible that future auto insurance rate increases are lower. but they are still on the way.
Auto repair costs continue to soar
Car accidents also come with property damage claims for damaged vehicles. Inflation has also hit this area hard, with high costs for parts and labor. Ongoing supply chain issues are making spares and OEM (original equipment manufacturer) parts hard to find and causing a serious backlog at repair shops, only increasing the cost auto insurance claims.
A report from Enterprise Rent-a-Car tracked how long drivers used rental cars while waiting for their car to be repaired after an accident. Enterprise determined that the average car owner wait time for collision repairs was 18.2 days for the second quarter of 2022, up 4.5 days from last year.
Repair times have increased dramatically, leading to additional pressure for insurance companies to raise auto insurance rates, says Rich Attanasio, senior manager at AM Best, a credit rating agency and provider of auto insurance. data analysis specializing in the insurance sector.
“Many personal auto insurers continue to pursue rate increases in response to worsening claims costs, which are driven by several factors: the higher death rate, increased repair costs for newer vehicles , rising used car prices, supply chain and labor market challenges and rising medical costs,” says Attanasio.
Mark Friedlander, spokesman for the Insurance Information Institute, said: “Personal auto insurance premium growth has remained relatively flat this year, despite significant increases in the consumer price index (CPI). , vehicle prices and the cost of automotive spare parts. ”
Friedlander notes other factors that are putting pressure on auto insurance companies to raise rates, including higher used vehicle values, higher car repair costs and rising claims. for catalytic converter flights.
Lawsuits lead to big payouts, then rate hikes
A major concern heading into 2023 for auto insurance companies is overpayment of claims due to litigation. A study by the Insurance Research Council found that having attorneys involved in personal injury auto insurance claims is associated with higher claim costs and settlement delays.
The APCIA report finds that claims involving litigation are increasing at rates never seen before. This includes increases in verdicts and some with exceptionally high jury awards, including billion-dollar personal injury verdicts. The worry among auto insurance companies is that these big lawsuits will set new precedents that will fuel “lawsuit inflation.”
The Insurance Information Institute has a brief on social inflation and its effects on auto insurance companies. It explains how social inflation refers to the impact of rising legal costs on insurance companies’ claims reimbursements, their loss ratios (how much an insurance company pays for claims compared to the amount she received in premiums) and ultimately how much we as policyholders will pay for car insurance.
A research paper from the Insurance Information Institute and the Casualty Actuarial Society found that between 2010 and 2019, social inflation increased commercial auto liability claims by more than $20 billion. There is evidence that similar trends are occurring in other industries, with insurance companies fearing this will seep into personal auto insurance.
High court costs and verdicts affecting car insurance companies will be passed on to drivers in the form of higher car insurance costs.
Overall, the bill is falling due for several costs, and car insurance companies always try to pass the costs on to customers.
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