Susanna Gotsch, lead analyst at Chicago-based auto claims and collision repair software company CCC Information Services, says that the property/casualty insurance and collision repair industries are at a crucial “inflection point” as claims frequency and costs are on the rise.
In the "2016 Crash Course" report released by CCC, Gotsch and other industry experts look at the factors driving these costs that will have a direct effect on the auto insurance repair industry.
Today’s automobiles can be described as technology on wheels with onboard computers, microprocessors, a range of sensors, cameras, radar and automated features, and other enhancements to improve safety. The National Traffic Safety Board’s “Most Wanted List of Transportation Improvements 2016” included making crash avoidance technology standard for all vehicles, as well as improving occupant protection, expanding the use of recorders to improve safety and disconnecting items that distract drivers.
The CCC report says that as more “collision avoidance technologies make their way into the mainstream vehicle population,” the number of vehicles using this technology will increase dramatically. The Arlington, Va.-based Insurance Institute for Highway Safety estimates that close to 50% of 2015 model year vehicles had front crash prevention as a standard or optional feature. However, 72% of the vehicles currently on the road are at least six years old or older, meaning only a small fraction actually have accident-reducing technology.
Auto claims on the rise
The number of accidents for private passenger cars had fallen over the past two decades as a result of higher unemployment, rising gas prices, graduated licensing for teens and higher insurance deductibles.
All of that changed in 2015 when lower fuel prices translated into more vehicles on the road and the number of claims rose. Other factors that led to an increase in claims were severe winters in 2014 and 2015, improved employment opportunities, a jump in new vehicle sales, increased road congestion and a crumbling infrastructure.
According to a report by the Washington, D.C.-based Road Information Program, a nonprofit that researches highway transportation, nearly 3 trillion miles are driven annually, and approximately one-quarter of the roads that carry 53% of the traffic are in poor condition.
While technology has improved vehicle safety, it also causes more distracted drivers who look at their phones for “just a minute” to check an e-mail, text message or answer a call. In 2013, the National Safety Council estimated that 20% of fatal, injury and property-damage crashes were related to cellphone use. And while the number of drivers talking on handheld phones has dropped, the number of those checking their handheld devices while driving has actually increased.
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This graph illustrates that handheld phone usage has increased despite fewer people holding their phones to talk while driving.
Given the number of older vehicles on the road, the question becomes whether to repair or replace them when there is an accident because they reach the total-loss threshold sooner than their newer counterparts. CCC found that vehicle repair costs have increased for vehicles of all ages, and more vehicles are becoming total losses.
The greatest increase in miles driven also seems to occur on highways where higher speeds and an increasing number of vehicles result in more severe accidents. This factor combined with the number of older vehicles on the road could result in greater frequency of cars being considered a total loss when involved in a crash.
The increased use of technology in vehicles is also affecting repair costs because parts are more complex and require additional labor hours for repairs. CCC says replacement parts account for approximately 40% of the overall repair dollars, and “new vehicles manufactured today are changing the landscape for insurers and collision repairers.”
New tools, equipment and training are required to repair vehicles as manufacturers increase their use of aluminum and other lighter-weight materials to meet stricter fuel efficiency guidelines. Lighting (headlights and taillights) that has improved safety features, sensors and cameras will also impact replacement part and repair costs.
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