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Why Are Auto Damage Claims Growing Twice as Fast as Inflation?

A new study by the Insurance Research Council (IRC) showed auto damage insurance claims increased at double the rate of inflation between 2010 and 2018. According to the “Patterns in Auto Physical Damage Insurance Claims” report, deductibles and policy limits didn’t grow in tandem with payment growth over the same period.

Auto Damage Claims Soar 3.7%

On average, insurance payments for car crash damage jumped 3.7% annualized throughout the research. Meanwhile, the overall Consumer Price Index (CPI) and inflation in automobile maintenance and repair increased by 1.8% annualized.

Commenting on the findings, IRC’s David Corum said that damage to cars after accidents is partly responsible for the rising costs of car insurance claim payouts.

He said there was a need to identify factors driving the cost of auto damage claims, especially in tandem with the ongoing vehicle technology transformations. Understanding the cost, drivers would help solve problems affecting the affordability and availability of auto insurance, said Corum.

During the study period, comprehensive insurance payments soared 4.4%, which is significantly above the overall inflation rate. On the other hand, the cost of collision payouts rose 3.0%. Property damage liability jumped 3.2%, the report indicated.

Vehicle Safety Enhancements Partly Responsible for Costly Crash Repairs

According to the most recent National Association of Insurance Commissioners (NAIC) data, the frequency of injury claims tends to decline despite the rise of auto damage liability claims over the past few years.

The finding underscores a vital point—vehicle safety enhancements are effectively protecting drivers and their passengers in the event of a crash. However, these technological improvements are partly responsible for the more expensive repairs required after an accident.

The IRC study also revealed that:

  • The frequency and cost of auto damage losses increased during the study period
  • Catastrophe claims were responsible for 20% of comprehensive claims payments
  • Auto damage insurance claims outgrew deductibles and policy limits
  • Fewer lawyers were involved in physical damage incidences than in personal injury claims, suggesting that the former cases are settled much faster and most likely without involving the courts
  • Most components of physical damage claims vary from state to state
  • Most car accidents involving physical damage today are less likely to include personal injury claims

In this IRC study, researchers analyzed more than 220,000 claims that insurance companies paid under the three main private passenger vehicle damage policies in 2010, 2014, and 2018.

Also noteworthy is that while insurers are incurring higher auto claims costs than ever before, they haven’t hiked car insurance premium rates to match the CPI growth rate. Specifically, the COVID-19 outbreak and the financial pressures it brought in its wake had the insurance industry give back $14 billion to policyholders.

As a result, many insured drivers received COVID-19 relief from their insurers in forms such as rebates, dividends, and premium reductions. The pandemic period has also seen a rise in the severity of claims due to speeding, especially now that there is less traffic on U.S. roads due to movement restrictions and more people staying home.

It should be an interesting time for drivers looking for ways to lower their insurance costs, like adopting a pay-per-mile pricing model or shopping around for insurance discounts.

The increase in auto damage claims is a reminder of the persistent risk of costly vehicle damage in the event of a crash. As a driver, you’ll want to protect yourself against loss by carrying the right auto insurance policy. Ensure you have the right auto insurance in place. Visit the professionals at McCarty Insurance to get started on your tailored coverage. We can help you understand the ins and outs of your chosen policy.

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