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Insurance projected to increase another 4% by year-end amid industry ‘existential crisis’

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During the first six months of the year, personal auto insurance prices have increased an average of 17% in the U.S., according to a mid-year report from Insurify, which projects another 4% increase before 2023’s close. Overall, Insurance Thought Leadership (ITL) says the auto insurance industry is in a state of “existential crisis.”

Auto insurance premiums increased to $1,668 during the first six months of 2023, according to Insurify’s database of more than 90 million car insurance quotes from partnering insurance companies.

Insurify predicts an additional 4% increase this year, bringing the total surge in car insurance rates to 22% and the average annual auto insurance price up to $1,742 by the end of the year.

“The skyrocketing auto insurance premiums in 2023 are atypical,” Insurify wrote. “For comparison, rates increased by 12% in 2022 and even dipped slightly in 2020 and 2021 as insurers benefited from fewer claims as a result of COVID-19 lockdowns.

“Inflation, the increasing cost of auto parts, natural disasters, legislative changes, and insurers grappling with record-breaking losses have converged to produce the dramatic price hikes policyholders face in 2023.”

ITL wrote last week that the auto insurance industry has seen several years of stability since its creation 125 years ago but is “caught between runaway inflationary cost pressures on one side and consumer wallets, many of which are no longer able to afford the spiraling auto insurance premium increases, on the other.​”

“In the middle is the $42 billion U.S. collision repair industry (of which $39 billion is paid by insurance), which has been experiencing severe technician shortages, rising labor costs, and pricing pressure from carriers as average repair costs have jumped 50% over the past few years,” the ITL article states. “These increases can be primarily attributed to the cost of replacement parts, scanning and calibration for newer model vehicles, which are now bristling with electronic Advanced Driver Assistance System (ADAS) features and related sensors. The even higher costs of repairing the rising number of electronic vehicles (EVs) exacerbates the problem.”

Length of rental (LOR) was also mentioned, which is now 17.4 and the first year-over-year increase since 2020, and supply chain delays were also mentioned as factors among those that continue to drive costs up.

And the “new normal” includes use of telematics in usage-based insurance (UBI) for rate setting as well as artificial intelligence (AI)-generated and photo-based claims.

“There is a Great Rebalancing underway as each of the major stakeholders scrambles to adjust to the new normal,” ITL wrote. “The critical question is whether they can adapt quickly enough to forestall what could be a major consumer- and investor-led disruption.

“A consumer groundswell of resistance to further auto insurance price increases could lead to broader market interference by state or federal regulators, who have the power to influence rates (much as is playing out now for auto in California and recently for property insurance in Florida).”

ITL further predicts there will be more consolidation of auto insurers and collision repair shops. The latter will lead the largest MSOs to further gain favor by carriers, “likely exceed negotiating parity with auto insurers and extract better commercial terms to cover their rising costs, thus adding pressure on auto insurers’ results.”

A new report from the Insurance Research Council (IRC) says auto claim severity rose beginning in the mid-2010s, and skyrocketed between 2020 and 2022, especially for vehicle damage claims — due in part to enormous inflationary pressures on replacement parts and auto body repair labor costs. During that same timeframe, claim frequency plummeted.

Claim frequency for both physical damage liability and bodily injury claims declined more than 2% annualized over the 21-year period from 2002 to 2022, the IRC found.

“During the first half of the study period, the combination of declining frequency and increasing severity left average loss costs relatively unchanged,” said Dale Porfilio, IRC’s president and Insurance Information Institute (Triple-I) chief insurance officer.

“However, as claim frequency leveled off and claim severity accelerated, the average payment per insured vehicle for most coverages began to climb steadily until the 2020 drop due to COVID-19. By 2022, average loss costs for nearly every coverage had surpassed the 2019 level.”

Other key findings of the IRC report include:

    • “Claim Frequency: Long-term declines in auto claim frequency spurred by safety innovation leveled off in the mid-2000s and the number of claims per insured vehicles generally stayed within a narrow range through 2019. Claim frequency plummeted during the COVID pandemic and remained below pre-pandemic levels in 2022;
    • “Claim Severity: The average payment per claim for most coverages increased steadily over the study period, with both physical damage (PD) and bodily injury (BI) claims growing more than 4.5% annualized; and
    • “Average Loss Costs: The average payment per insured vehicle increased more than 2.25% for both BI and PD claims over the study period as increased severity more than offset declining frequency.”

Data sources for the report included the National Association of Insurance Commissioners and the Fast Track Monitoring System.


Featured image credit: Lemon_tm/iStock

More information

APCIA says auto insurance has an ‘uncertain road ahead’ as claims outpace premium increases

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