New APCIA study examines growing challenges for auto insurance industry

A new study titled “Auto Insurance: The Uncertain Road Ahead”, published by the American Property Casualty Insurance Association (APCIA), highlights the growing challenges facing the insurance industry.

The study found that insurance claims inflation is rising at a faster rate than the underlying consumer price index (CPI), resulting in substantial increases in auto insurance losses and combined ratios. This is exacerbated by a host of other factors affecting the private passenger auto insurance industry, APCIA said.

“In addition to inflationary trends, the private passenger auto insurance industry is also experiencing several other trends such as increased frequency and severity of claims costs, riskier driving behavior by the public, increases in medical and hospital service costs, and outsized growth in lawsuit verdicts and abuses of the legal system, which are negatively impacting and pressuring the industry with increased losses,” said Robert Passmore, department vice president for APCIA and co-author of the study.

Key findings from the study data include:

• Underwriting losses for U.S. private P&C insurers in 2022 were $25.6 billion, more than double 2021 losses, marking the worst result since 2011.
• Private passenger motor insurance experienced the highest direct loss ratio among major lines of business, at 80.2% in 2022, excluding claims adjustment expenses. This represents an increase of 12.2 points from 2021 and a staggering 24.1 points from the pandemic-affected low point of 2020.
• Claims severity for passenger vehicle damage increased significantly from 2018 to 2022. Property damage liability and collision claim severity increased by nearly 50%, impacted by rising auto repair and labor costs, inflation and theft rates. Over the same period, the average severity of bodily injury claims jumped 40%, signaling accelerating medical inflation, abuse of the legal system and a sharp rise in road fatalities.
• Despite the escalating losses, premiums for personal property and casualty insurers rose only 6% for the year, falling well below the 24% rate of increase in losses.
• The auto insurance CPI compiled by the U.S. Bureau of Labor Statistics, which includes the basket of goods and services auto insurers need to pay claims, also paints a worrying picture, APCIA said. The June figure showed a year-on-year increase of 6%, marking the sixth consecutive monthly increase.

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“All indicators suggest that high car repair and replacement costs will extend into 2023 and potentially beyond,” Passmore said. “Medical inflation is also accelerating. Although insurers continue to monitor the situation closely, as claims costs continue to rise, insurers may be forced to pass these loss costs on to policyholders. Given the trends, insurers are strongly encouraging drivers to minimize their risk by avoiding risky driving behaviors that can result in a claim. Insurers are also advocating for better infrastructure, including reliable supply chains for essential auto parts and safer roads, which should lead to fewer accidents and lower claims costs that help keep insurance premiums affordable for consumers.

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