Filed Under:Claims, Auto

What Will Drive Total Loss Auto Claims in 2014?

Exploring Interplay of Auto Sales and Aging Vehicles

Susanna Gotsch is lead analyst at CCC Information Services Inc. and the author of its Crash Course Report series.

The insurance industry has seen a significant increase in both the frequency and cost of total loss claims over the last several years. This article will explore what’s behind these trends and discuss what to expect in the next 18 to 24 months.

Comparing annual new vehicle sales from 2008 through 2012 versus the 16.7 million average sales figure for the 10 years prior reveals a loss of 20.9 million new vehicle sales. This means 20.9 million fewer new vehicles entered the U.S. vehicle fleet and helps explain why the average age of registered vehicles in the U.S. continues to grow. 

This drop-off in sales led to a disruption in the supply of used vehicles available in the market. With typically 60 percent of all new vehicle sales historically including a trade-in, the drop-off in new sales alone meant at least 12.5 million fewer vehicles entered the market as used inventory between 2008 and 2012.[vii] Fleet companies and rental fleets also replaced fewer vehicles during this period, adding to the overall smaller inventory of used vehicles in the U.S. market. Yet while used vehicle supply was falling, demand was still high as it typically is during recessionary periods. In 2009 the ratio of used vehicle sales to new vehicle sales jumped to 3.4 versus the ratio of 2.5 for the prior ten year period[viii], as consumers that were able to purchase a vehicle opted for used versus new. Other external factors beyond the reduced supply were also instrumental in driving up used vehicle prices in the last several years. The federal cash-for-clunkers program in the summer of 2009 took about 750,000 used vehicles out of the market. Soaring gas prices in 2008 and again in 2011 drove demand for fuel-efficient vehicles. In addition, the disruption of new vehicle production resulting from the 3/11/2011 earthquake and tsunami in Japan led to a surge in demand for used vehicles from dealers racing to get vehicles to fill their lots. Subsequently soaring demand at a time of tight inventory led to higher used vehicle prices. Wholesale used vehicle price data from Manheim and ADESA shows used vehicle prices rose between 25 and 30 percent from late 2008 to 2012.[ix] 

Through June 2013, the supply of wholesale units of vehicle ages between 1 and 4 years increased 7.7 percent, helping to drive down wholesale prices 1.6 percent. Conversely, supply of wholesale units of ages 5 to 8 years fell 17.7 percent pushing their wholesale prices up nearly 1 percent.[xiv] Because many wholesale used vehicles are newer model year vehicles, softening prices among newer models has a larger impact on overall wholesale price measured by the auction firms.

Slowdown in Rising Total Loss Values

With economic growth still slow, and unemployment rates high, many consumers are still unable to afford a new car, and will opt to purchase a used vehicle instead, which could contribute to keeping demand high.

Subsequently, while the average total loss vehicle value has begun to taper, the industry will likely close out the year with total loss costs up moderately. Through mid-August 2013, total loss vehicle values are up only 1.2 percent, versus nearly 6 percent each of two years prior.   

Featured Video

Most Recent Videos

Video Library ››

Top Story

What grade does your state get for its insurance regulations?

Eight states received an “A” grade, and one state received an “F.” Insurance is regulated almost entirely by the state level, and here's a report card on how the states are doing.

Top Story

3 tips for becoming a lead-generation master

A lead-generation master takes full advantage of all the possibilities for attracting prospects through their website, not just through their contact forms.

More Resources


eNewsletter Sign Up

Claims Connection eNewsletter

Breaking news on disasters, fraud, legal trends, technology, and CE initiatives for the P&C claim professional – FREE. Sign Up Now!

Mobile Phone

Advertisement. Closing in 15 seconds.