Automobile insurance companies are struggling to keep up with the rising cost of collision insurance claims, and that’s forcing them to raise rates at a steady clip.
In 2019, the industry paid out $62.6 billion in losses for damage to personal vehicles and $5.4 billion for commercial vehicles. By 2023, those numbers had risen to $95.4 billion and $8.2 billion, respectively.
Insurers have responded by hiking collision insurance premiums and becoming more selective about the drivers and businesses they will insure.
There are a number of trends converging to affect how easily people and businesses will be able to buy auto coverage this year and next, as well as how much it will cost.
Totaled vehicles
More vehicles are being “totaled,” which usually happens when the cost of repairing a vehicle exceeds its market value. This is largely a result of automobiles staying on the roads longer.
The average age of U.S. vehicles hit a record 12.6 years in 2024, up a year and a half since 2012. While that may be a sign of better quality vehicles that last longer, older vehicles in general have less value than newer ones.
Also, due to the oversupply of used vehicles, pre-owned car prices have fallen 3.77% since February 2024.
As values drop and the demand for new automobiles lessens, total loss frequency is increasing and is expected to continue its upward trajectory this year.
Fewer collision claims
Collision insurance claims are becoming less frequent. That could be the result of better driving habits or milder winter weather, possibly driven by climate change.
It could also mean that drivers are choosing not to report damage that may fall below or slightly above their deductibles, which policyholders have been increasing to reduce their premiums.
Between January 2019 and July 2024, the average first-party deductible grew by 47% in the U.S. Drivers with higher deductibles often make different decisions when it comes to filing collision-damage claims, which could result in fewer “small” first-party claims this year.
Fear of higher premiums when their policies renew or of their insurance company dropping them altogether, may be driving decisions not to report a small collision claim.
Costlier repairs
When claims do get reported, they are more costly because vehicles are more complex and complicated to repair. There are more parts in the cars, meaning there are more parts to replace, and repairs take more time.
Carmakers are introducing new body styles more frequently, relying more on certain materials such as aluminum and composites. Vehicles also come with new high-tech options, such as front end and rear cameras and collision avoidance systems.
After an accident, these systems may need to be recalibrated even if they were not damaged. This adds to labor charges for repairs.
Finally, more cars are electric or hybrids. Electric vehicle sales eclipsed the one million mark in 2023 and are expected to grow in coming years.
Depending on the vehicle, these EVs may be more expensive to repair than are their gas-powered counterparts. Often these cars will have to go to specialized shops that are equipped to repair them, which also drives up costs.
Some may be component-based, making them easier to fix, but not all fit that description. In some cases, tearing down the vehicle may be necessary to identify all the damage. This increases labor costs.
The takeaway
What all this means for car and business owners is that the cost of repairs is likely to keep rising. Insurers will want to increase the insurance premiums that pay for those repairs.
To hold down premium increases, we can help you compare quotes from several insurers. You may also want to consider increasing your deductible, or even drop comprehensive coverage on older vehicles.
Your auto insurer may offer a rate discount if you bundle your homeowner’s and auto coverage with them.
We can help you think through these decisions. None of them will be easy. However, the trends are clearly pointing in the direction of increased premiums.
Tags: auto insurance, Leaders' Insurance Services