Pandemic sparks surge in US auto claim severity

New report reveals trends in auto insurance claims

Pandemic sparks surge in US auto claim severity

Insurance News

By Mika Pangilinan

The US saw a significant surge in auto claim severity during the pandemic years, according to a new report from the Insurance Research Council.

Claim severity reportedly began accelerating in the mid-2010s, while auto claim frequency declined over the past two decades.

Since the beginning of the pandemic in 2020, claim frequency was found to have plummeted further as claim severity soared.

The increase in claim severity was primarily observed in vehicle damage claims, according to the IRC report, driven in part by inflationary pressures on replacement parts and auto body repair labor costs.

On the other hand, the decline in claim frequency was found to be especially pronounced for both physical damage liability and bodily injury claims, falling more than 2% annually over the IRC’s 20-year study period from 2002 to 2022.

IRC president Dale Porfilio said the combination of declining frequency and increasing severity left average loss costs relatively unchanged during the first half of the study period.

This changed as claim frequency leveled off and claim severity accelerated, he added, with the average payment per insured vehicle for most coverages beginning to climb steadily until the 2020 drop due to COVID-19.

“By 2022, average loss costs for nearly every coverage had surpassed the 2019 level,” said Porfilio, who also serves as chief insurance officer of the Insurance Information Institute (Triple-I).

The report also highlighted other trends in auto claims including changes in:

  • Claim Frequency: Auto claim frequency had been on a long-term decline due to safety innovations, but it began to level off in the mid-2000s. The number of claims per insured vehicle remained relatively stable through 2019 until the COVID-19 pandemic led to a sharp decline in claim frequency and even in 2022, it remained below pre-pandemic levels.
  • Claim Severity: The average payment per claim for most coverages steadily rose throughout the study period, with both physical damage (PD) and bodily injury (BI) claims growing by over 4½ percent annually.
  • Average Loss Cost: Over the course of the study period, the average payment per insured vehicle increased by more than 2¼ percent for both BI and PD claims. This increase was largely driven by greater claim severity, which outweighed the decline in claim frequency.

IRC’s latest report is part of a longstanding series of research analyzing insurance industry trends. It utilized data from the National Association of Insurance Commissioners and the Fast Track Monitoring System, among other sources, to describe personal auto trends at both national and state levels.

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