Insurers are already acutely aware of the linkage between gas prices and the number of vehicle miles traveled. What may be less apparent, however, are the myriad ways in which persistently high fuel prices affect consumer decisions and behavior that directly impact both the severity and frequency of auto insurance claims.
Mitchell International, Inc. explores the relation of volatile fuel pricing to claims in the third quarter 2011 edition of its Industry Trends Report (ITR), which offers a quarterly snapshot of the auto physical damage collision and casualty industries. Supporting his assertions with statistics from various sources, Greg Horn, ITR editor-in-chief and Mitchell’s vice president of industry relations, delves into the company’s total loss valuation data warehouse to explain how the year’s rapid changes in gas pricing are impacting resale values for cars of various fuel efficiencies in different ways.
“To determine the relationship between fuel price spikes and values, we examined the Toyota Corolla, Prius and the Ford Expedition as representatives of the fuel-efficient, hybrid and gas guzzler vehicle categories,” said Horn in the quarterly feature, “Timing is Everything: Total Loss Values and Gas Prices.”
“Our claims data fell in line with other reports and market sources and did show that fuel-efficient vehicles tend to rise more quickly and reliably in value during periods of high prices than gas guzzlers, which fall in value,” he added. “Significantly, our analysis showed a market reaction time during fuel price volatility of approximately three weeks—a delay between the rise in fuel prices and the rise in value of the most fuel efficient vehicle in our study—the hybrid.
“Gas guzzlers, which are traditionally more volatile during fuel price fluctuations, showed a similar lag pattern,” Horn continued. “The insurance and collision repair industries need the accuracy of a true market survey method for valuing a total loss because constantly fluctuating fuel prices move too fast, with too great an impact, for slower traditional ‘book value’ valuations to accurately reflect the true actual cash value of total loss vehicles.”
Among other notable findings in Mitchell’s current ITR are:
"Mitchell’s 2Q-2011 data reflect an initial average gross collision appraisal value of $2,761, about $90 less than this same period last year. However, applying the indicated development factor of 9 percent suggests a final 2Q-2011 average gross collision appraisal value of $3,008. The average actual cash value (ACV) of vehicles appraised for collision losses during 22-2011 was $13,705, representing an increase of $500 over the same period last year.
"In 2Q-2011, the average gross appraisal value for comprehensive coverage estimates processed through Mitchell servers was $2,854 when compared to $2,625 in 2Q-2010. Applying the prescribed development factor of 1 percent for this data set produces an increase in the adjusted value to $2,883, reflecting the strong storm season with many hail claims."
Horn added that anticipated dip in gas prices would result in more miles driven and thus a possible uptick in the number of auto claims.