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2024: Higher total loss thresholds, more parts repairability

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Collision Repair | Insurance
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The latest P&C industry trends report from Enlyte — the parent company of Mitchell International, Genex, and Coventry — highlights key issues collision repairers and insurers will likely face this year, including higher total loss thresholds, more parts repairability, and higher overall repair costs.

The “2024 Enlytened Trends Report” provides detailed commentary from Mitchell Claims Performance Director Ryan Mandell on claims frequency and severity as well as parts and vehicle repairability.

Due to high used and new vehicle prices, the total loss threshold for insurers has risen, which means more collision-damaged vehicles are likely to be repaired now rather than declared a total loss, according to Mandell.

“As a result, average repairable severity is above where we would normally expect it to be,” he said.

The repairability of parts, however, has slowly decreased over time, in part, due to vehicle material choices by OEMs.

“Although it is possible to repair aluminum body panels, for instance, the material properties of the panel make it more likely that the collision’s crash energy created a pattern of damage that prevents a safe repair,” Mandell said. “In early 2022, 17.5% of parts on an estimate were repaired. In 2023, it was 17.1%.”

Distracted driving is to blame for some of the 1% increase in claims volume experienced during the first half of 2023 compared to early 2o22, as is an overreliance on ADAS technology by drivers, Mandell added.

“There are certainly a lot of variables driving up the cost of proper and safe vehicle repairs,” he said. “In early 2023, the average cost of a repariable claim in the U.S. exceeded $4,700 — an increase of approximately 8% compared to the first six months of 2022. Generally, annualized growth is between 3% and 5%, so that is a big jump.

“By the time the data is mature, I would expect to see the average repairable claim cost at around $5,000 in the U.S…. In 2024, those numbers will likely grow, potentially exceeding $5,500.”

Mandell said factors that are contributing to the claim cost increase are due largely to parts because the average number used in each repair has risen, making parts now represent a greater share of the total estimate. The number of parts used in each repair is growing by roughly 1% each year.

“Historically, it took four to five years to add one additional part per estimate,” he said. “It now takes about a year. That is significant, especially since the cost of a replacement part is around $275 — an extra $75 more than in 2020.

“Inflation is partly to blame for these rising costs, although it has slowed from where it once was in 2022 — particularly for aftermarket parts. At that time, we saw the top 150 commonly replaced parts increase in price by just about 17%. In 2023, prices stabilized, and the growth was closer to 10% for the top 150 parts. OEM part prices are obviously also impacted by inflation, but not to the same degree.”

In 2022, OEM parts rose 11% in cost, according to Mandell. He expects single-digit price increases for both aftermarket and OEM parts this year, but that depends on the final effects of the 2o23 United Auto Workers (UAW) union strike, he said.

An increase in the number of vehicles equipped with advanced driver assistance systems (ADAS) also plays a part in repair costs and parts repairability, especially as they become standard on vehicles. At least one ADAS feature is available on most model year 2018 and newer vehicles, according to Mandell.

“Take, for instance, the presence of a millimeter wave radar sensor behind a bumper cover,” Mandell said. “If that bumper is damaged, it could limit the repair options the technician has. To ensure that the sensor continues to function properly, many manufacturers require its replacement.”

ADAS is affecting the overall cost of repairs because of the added time and expense to perform OEM-required dynamic and/or static calibrations on complex radar, ultrasonic, lidar, and camera sensors to return vehicles to their pre-accident conditions, ensuring the systems will work correctly. Calibrations can come at an even steeper cost for shops that don’t have the tools or expertise to perform them on-site and have to sublet the work, Mandell said.

In the U.S., calibration frequency is a woeful 1 17% for repairable vehicles.

“I anticipate that number will increase significantly in 2024 and, potentially, reach 40% by the end of next year and even 60% by the end of 2025 with the U.S. likely reaching those percentages first,” he said. “Calibration frequency will continue to grow as we get closer to 2018 being the average model year for repairable vehicles. Insurers must be prepared from an underwriting perspective and auto body shops
must invest in the equipment and training needed to perform the work themselves, or risk losing the profit margin to a sublet.”

Mandell also notes in the report that 2023 saw a dramatic increase in the national average bodywork labor rate, which jumped from $55 an hour to $59.

“Traditionally, labor rates increase slowly — much more slowly than the 7.5% growth we experienced in early 2023,” he said. “I expect that will be the case in the future for all labor operations, including frame and refinish. Combining this additional labor cost with inflation, ADAS, and the introduction of lightweight materials used in vehicle construction has created a significant underwriting challenge for insurance carriers.”

Collision repair shops and insurers can expect the average cost of repair to remain high this year as Mandell expects an 8-10% increase year-over-year for the foreseeable future.

“Subsequently, insurers may be forced to adjust premiums as they look to balance expenses with profits,” he said. “For auto body shops, leveraging technology to expedite key steps in the repair process can help boost efficiency, reduce cycle time, and control expenses.”

Another trend Enlyte included in its report is the growing interest in and use of generative artificial intelligence (GenAI).

“While we at Enlyte are equally excited and encouraged by the opportunities GenAI offers, as industry veterans, it is also our responsibility to make sure AI FOMO [Fear of Missing Out] is not the reason for new technology implementation without proper due diligence,” wrote Alex Sun, Enlyte president and CEO, in a separate report.

Enlyte says ongoing data hygiene is critically important “as both data and the regulatory environment change frequently and drive many claim-related activities.”

“Ongoing monitoring and maintenance of data assets is critical to the long-term success of any generative AI program, as is the ability to audit changes over time,” the Enlyte report states.

Enlyte posed a series of questions to ChatGPT, a popular AI chatbot from OpenAI, about the P&C industry and included the responses in the 2024 trends report.

“As is often the case with a new innovation, there is plenty of public discourse about the transformative potential of generative AI and what it can do, with far less discourse about what it should do, or how best to approach its adoption for responsible, sustainable growth,” Enlyte wrote. “Interestingly, the technology itself is trained to answer these kinds of questions, including acknowledgment of its limitations.”

ChatGPT named data privacy as a limitation several times in response to Enlyte’s questions and cautioned its use when handling confidential and private information.

In one response, the chatbot listed GenAI as posing data and privacy security threats. “Insurers deal with sensitive customer information, and the use of generative AI introduces potential privacy and security risks,” the chatbot wrote. “Inadequate data protection could result in breaches and regulatory penalties.”

When asked if sharing confidential or personally identifiable information (PII) using ChatGPT would be kept private the chatbot responded, in part, “It’s essential to work closely with your organization’s IT and legal teams to establish clear guidelines and policies for the responsible and secure use of generative AI models, especially when dealing with sensitive or confidential information. Choosing a reputable and trusted
service provider that prioritizes data privacy and security is a critical aspect of ensuring data protection during generative AI interactions.

“Remember that the goal of implementing generative AI in claims processing is not just to adopt the latest technology but to enhance efficiency, accuracy, and customer service.”

Enlyte concluded, “As the industry seeks to understand the vast array of opportunities and challenges that generative AI can offer in the coming years, it’s important to separate fact from fiction as the hype around this technology reaches a fever pitch.”


Featured image credit: studiodr/iStock

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