Americans Back On The Roads And Auto Insurers See Higher Costs

CHICAGO, Ill. – Rising auto accident frequency and severity in the U.S. auto insurance market, combined with the challenges of balancing supply and demand for vehicles and vehicle parts following COVID-19, are resulting in increased claims costs and delays, according to a new white paper by the American Property Casualty Insurance Association.

Key points of the study include:

• Auto loss costs are surging as driving levels rebound to pre-pandemic levels.
• Higher severity along with rising claims frequency are pushing auto insurance costs up to levels not seen since 2017, which may impact consumer costs.

• Accelerating costs to repair or replace vehicles are among the top trends amid severe shortages of new and used vehicles.

• Drivers are encouraged to avoid risky driving to minimize potential losses and injuries.

Following a brief decline in miles driven early in the COVID-19 pandemic, drivers have largely returned to the roads. The rise in claims has compounded injury-related costs that continued to steadily climb during the pandemic, while costs to repair or replace vehicles have recently skyrocketed amid severe vehicle and auto parts shortages.

Demand for new and used vehicles has surged, depleting inventories at dealerships across the U.S. At the same time, auto manufacturing remains stalled, driven by semi-conductor chip shortages and ongoing global supply chain issues that have made critical auto parts scarce. The rapid spread of the delta variant is further stressing supply chains. The resulting increase in price for new and used vehicles, as well as rental cars, has contributed to rising inflation—leaving car buyers with fewer and more costly options.

The combined effects have alarmed insurers as current trends continue to accelerate costs higher. Insurers are cautioning drivers to avoid risky driving behaviors to reduce their risk of loss and to avoid potentially.

“This new study highlights recent trends in the U.S. auto insurance market that are leading to increased claim costs and impacting consumers,” said Karen Collins, assistant vice president, personal lines for APCIA. “There has been a rapid rise in the number of auto accidents and in the severity of accidents. At the onset of the pandemic, there was an initial decline in the number of miles driven. However, that quickly changed as we emerged from the stay-at-home orders and Americans are now driving more. In fact, driving has returned to near pre-pandemic levels.”

The National Highway Traffic Safety Administration (NHTSA) recently released early estimates for 2020 noting that more than 38,000 people died in motor vehicle crashes last year, which is an increase of about 7 percent over the previous year and the largest projected number of fatalities since 2007. This demonstrates that driving behavior is becoming increasingly riskier and our roads more dangerous, despite better vehicle technology and a temporary drop in traffic congestion.

“Insurers are increasingly concerned that since the start of the pandemic, Americans have embraced riskier driving behavior, such as impaired driving, speeding, and failure to wear a seatbelt,” said Collins. “This is leading to more crashes at a time when the cost of medical care and vehicle repairs is escalating. Safety is the primary concern. However, these trends also impact consumers’ auto insurance costs.”

At the same time as the number of crashes increased, auto accident severity remains at an elevated level, largely due to the rise in the cost of medical care. The ongoing pandemic has also resulted in significant vehicle shortages and major delays in auto repairs across the industry. This is due to labor shortages and supply chain constraints for critical auto parts needed to repair and manufacture new vehicles. These supply chain issues may continue to exacerbate costs into next year.

Additionally, data from the National Insurance Crime Bureau demonstrates that auto thefts also reached their highest level in a decade in 2020, while catalytic converter thefts were more than four times higher in 2020 than the prior year. These issues along with the emerging trends are combining to put pressure on auto insurance costs well into 2022

“With data showing sharp rise in the cost of auto insurance claims during 2021, this has a direct impact on families, individuals, and businesses,” said Collins. “The intersection of an improving economy, the rise in more dangerous driving behavior, rising numbers of injuries, an increase in vehicle costs due to the severe supply and demand imbalances, and COVID-19 related global shipping challenges are together creating significant upward pressure on auto insurance pricing.”

Insurers strongly encourage drivers to minimize their risk by avoiding risky driving behaviors that may result in a crash. Insurers will continue to advocate for better infrastructure, including reliable supply chains for critical auto parts and safer roads to help keep insurance premiums affordable for consumers. APCIA remains dedicated to additional measures to help control consumer costs, such as reforms for lawsuit abuse, auto body repair, and medical billing.

APCIA is the primary national trade association for home, auto, and business insurers. APCIA promotes and protects the viability of private competition for the benefit of consumers and insurers, with a legacy dating back 150 years. APCIA members represent all sizes, structures, and regions—protecting families, communities, and businesses in the U.S. and across the globe.