Author, Jeremy Hoolihan, Account Executive, Rancho Mesa Insurance Services, Inc.
Inflation continues to plague our nation with no end in sight. With a consumer price index (CPI) reaching as high as 9.1% in July of 2022, the trickledown effect is far reaching. In the second quarter of 2022, the auto insurance marketplace saw a loss ratio of 78.4%. This is quite a spike compared to the average loss ratio of 65% between the years of 2016-2020. Inflation is not the only contributing factor to the challenges within the auto insurance marketplace; we’ll discuss medical inflation, supply chain shortages, and labor shortages.
A continual rise in medical inflation has resulted in the increased cost of treating injured drivers and passengers. Since 2020, healthcare spending has increased by 9.7%. In the first quarter of 2022, the average bodily injury claim was up 24.2% with medical inflation being a significant factor. Because insurance companies are having to pay more due to medical inflation, consumers are seeing increased premiums.
Also, in the first quarter of 2022, the average collision claim cost reached a record of $5,743. This is a 36.5% increase since the first quarter of 2020. Much of this increase can be attributed to supply chain shortages and disruptions.
COVID-19 shutdowns caused decreasing demand for good and products. There was also an ice storm in February of 2021 that knocked out factories across the South. The Suez Canal was blocked for six days, and there was a semiconductor shortage due to the United States’ reliance on companies overseas.
Now that things have opened up post-pandemic, there are still shortages of available parts and supplies which continues to affect our economy. These supply chain factors have contributed to the average cost of a new car increasing 11.4% and the average used car jumping 7.1%. With the costs of cars increasing and the shortage of available parts, the result is a huge uptick in the cost of repairs and/or replacement of damaged vehicles, as well as the insurance costs.
Labor shortages are another important factor impacting the auto insurance marketplace. Simply put, the shortage has made it difficult to find skilled workers to make vehicle repairs. While the unemployment rate is back to pre-pandemic rates, many people are still testing the waters as they return to their jobs and, in some cases, taking completely different career paths. With the increased demand for workers, employers are offering and paying higher wages, which also leads to higher costs for goods and services, which further increases overall insurance costs.
As auto insurance premiums continue skyrocketing as a result of these inflationary factors, now is the time to focus on improving your business’ auto program.
For help in developing a Fleet Safety Program that will improve your company’s risk profile and policies and procedures, please feel free to reach out to me at (619) 937-0174 or jhoolihan@ranchomesa.com.