Inflation, Worsening Driving Behaviors Increase Auto Insurer Losses

Inflation and continuing deterioration in driving behaviors are combining to pressure auto insurers, according to the American Property Casualty Insurance Association (APCIA).

In a recently released paper, The New Normal? Auto Insurers Continue To Struggle with Inflation, the APCIA noted that automobile insurers' loss ratios have climbed to their second-highest level in more than 20 years, reaching 78.4 percent in the second quarter of this year.

The highest inflation in 40 years has contributed to insurance claim costs rising faster than the underlying consumer price index, outpacing increases in premiums, the APCIA said. In addition, the number of fatalities due to traffic accidents increased 10 percent in 2021 over 2020, the highest annual percentage increase in the US National Highway Traffic Safety Administration's Fatality Analysis Reporting System's history, according to the APCIA.

"For auto insurers, the now increasing frequency of claims coupled with significantly higher auto repair and replacement costs has heavily impacted auto insurance costs," the APCIA paper said. "Since 2017, claim severity for vehicle damage, which includes property damage liability and collision coverages, increased nearly 41 percent as of the first quarter of 2022."

Along with ongoing increases in the costs of auto repairs, car rentals, and vehicle replacement, the increasing frequency of vehicle damage claims multiplies the impact of inflation on auto insurers, the APCIA said.