Insurers say poor driving and inflation are among the factors driving higher auto loss ratios

U.S. auto insurers face largest out-of-pocket loss ratio in 20 years due to factors including historic inflation, deteriorating driving behavior and sky-high jury awards, the American Property and Casualty Insurance Association said in a new report.

APCIA said the direct loss rate for physical damage to automobiles reached 77.1% in the third quarter of 2021 – after hitting an all-time low of 45.2% during COVID-19-related business closures in the second quarter of 2020.

The report says traffic levels have recovered as pandemic restrictions eased and were within 1% of pre-pandemic levels in the first half of this year. The return to the roads has been accompanied by a 10% increase in the fatal accident rate from 2020 to 2021, the largest percentage increase in history. US passenger car losses jumped 25% between 2020 and 2021.

“One of the things we ask in the report is, is this the new normal?” said Robert Passmore, APCIA’s vice president for personal lines. “What is the new normal?

Normal is definitely more expensive. The report notes that the inflation rate peaked at over 9% in July, before dropping to 8.3% in August. But U.S. auto insurers face a variety of additional factors that are expected to continue to drive claims costs up through 2023 or beyond.

The report includes several statistics that illustrate this trend:

• Private passenger collision claim severity reached a record $5,743 in the first quarter of 2022, up 36.5% from the same period in 2020. Average personal injury claim severity increased by 24 .2%.
• Personal auto loss ratios climbed to 78.4% in the second quarter of 2022, compared to a quarterly average of 65% from 2016 to 2020.
• The number of miles traveled on U.S. highways rose to 1.305 billion in the first five months of 2022 from 1.119 billion in the same period of 2020, according to the Federal Highway Administration. The latest figure is only slightly lower than the pre-pre-pandemic level, which was 1.316 billion miles in the first five months of 2019.
• The road fatality rate reached 1.33 per 100 million vehicle miles traveled in 2021, up from 1.1 per 100 million in 2011, according to data from the National Highway Traffic Safety Administration.
• The average verdict for a lawsuit awarded over $1 million increased almost tenfold from 2010 to 2018, from $2.3 million to $22.3 million, according to the American Transportation Research Institute. Personal injury judgments have increased 320% in 10 years, from $39,300 in 2010 to $125,366 in 2020, according to data from Current Award Trends in Personal Injury.
• The number of car thefts jumped 25% from 2019 to the first half of 2022, reaching nearly 500,000 stolen vehicles with losses amounting to $4.5 billion.

The report says car insurance rates have not increased enough to keep up with rising costs. Personal auto direct written premiums rose only 4.6% from a year ago, well below the rate of growing losses.

Passmore said insurers’ ability to raise premiums is limited by intense competition in the industry. He said APCIA released the report, in part, to educate the public and regulators about the pressures that are forcing insurers to seek back-to-back rate increases.

At least once, the consumer advocate is skeptical of the industry’s unfortunate history.

Harvey Rosenfield, the founder of Consumer Watchdog in California, said very few insurers cut rates during the pandemic, even as miles driven dropped. While APCIA says the industry has reimbursed consumers $14 billion, Rosenfield said a study by his organization found the industry saved far more than that due to a drastic reduction in claims. .

“There was a reduction because our cars were sheltering in place in our driveways,” he said.

Rosenfield said the insurance industry will seek any means necessary to distract the public from its “massive theft” during the pandemic.

“The insurance industry will use any excuse to justify the need for them to raise premiums,” Rosenfield said. “It’s all driven by their desire to maximize their profits at the expense of consumers.”

Top photo courtesy of APCIA.