Staying ahead of industry trends and marketplace dynamics is critical to success. Early last year CCC Information Services published its Crash Course 2014 report which offered industry projections for auto collision repair and total loss costs. With 2014 now behind us, we revisit these projections around economic growth, auto claims frequency, total loss vehicle values.

U.S. Economic Growth

Crash Course 2014 Trend

The World Bank in early 2014 estimated growth in the U.S. would likely reach 2.8 percent.[i] In comments made to the annual meeting of the American Economic Association in Philadelphia in January 2014, Ben Bernanke said: “The combination of financial healing, greater balance in the housing market, less fiscal restraint, and, of course, continued monetary accommodation bodes well for U.S. economic growth in coming quarters.”[ii] Despite the drag on economic growth from bad weather in the early months of 2014, economists are still fairly optimistic that 2014 will see steady but stronger growth than in 2013.

Analysts are projecting new vehicle sales in 2014 will land between 16 and 16.4 million based on a continuation of the key trends that have driven sales over the last four years: low-cost financing due to low interest rates, high levels of leasing, and pent-up demand. Automotive sales have been a major force driving economic growth coming out of the recession; expect more of the same in 2014.

January 2015 Update

The polar vortex of first quarter 2014 led to a decline in the U.S. GDP of 2.1 percent.[iii] However, economic growth recovered throughout the remainder of the year, and we will likely see published growth rates for 2014 of about three percent.

2014 was the fifth year in a row where new vehicles sales in the U.S. saw a nice lift; continuing its recovery from its 27-year low of 10.4 million sales in 2009.[iv] New vehicle sales closed out 2014 at 16.53 million, up six percent from the prior year, and the most sales since 16.50 million in 2006.[v]

With demand for new light vehicles outpacing U.S. economic, wage and housing growth rates, Morgan Stanley analyst Adam Jonas believes the rate of sales going forward is unsustainable.[vi] However, most analysts are projecting sales will fall between 16.7 million and 17 million in 2015 based on assumptions of continued economic growth, low interest rates, improved employment, cheap gas prices, and whatever pent-up demand still remains.[vii] Forecasts for overall economic growth in 2015 vary based on the anticipated impact of slower growth outside the U.S., but most economists anticipate growth will exceed three percent in 2015 as well.[viii]

Auto Claim Frequency

Crash Course 2014 Trend

Private passenger auto insurance experienced a fairly steady rate of declining claim frequency over the last decade. A variety of factors have been identified as contributors to the decline, including an aging population, fewer miles driven, graduated licensing for teenagers, higher deductibles and more vehicles than drivers. Several additional factors came into play with the recession, including higher unemployment and consumers modifying auto insurance policies to include only mandatory coverage.

Numerous studies by organizations such as IIHS suggest the industry will see a reduction in automotive claim frequency over the next 25 to 35 years due to the introduction of crash avoidance systems and the much anticipated emergence of self-driving vehicles.[ix] However, the primary question remains 'how fast will it happen?' The sharp fall in new vehicle sales between 2008 and 2013 and lower vehicle scrappage rates have slowed the turnover of the U.S. vehicle fleet. As new vehicle sales begin to ramp, many of those vehicles will likely include crash avoidance technology; however, they will be traveling alongside a fleet that has aged, where vehicles are not equipped with the same type of technology.

While the vast majority of individuals in the U.S. must still use privately owned vehicles in their commutes, there are clear signs that major demographic shifts will continue to temper auto accident frequency in the U.S.

A rapid ramp up in new vehicle sales where more are equipped with crash-avoidance systems could accelerate a reduction in accident frequency. Of the numerous factors that have helped drive frequency down over the last twenty years (aging drivers, fewer miles driven, more growth in urban areas, emergence of car-sharing programs, the recession, etc.) the adoption of these systems has the likelihood of a sharper impact. As such, the automotive insurance and collision repair industries should prepare and position themselves to work in a market that is slowly but surely getting smaller.

January 2015 Update

There was much milder catastrophe activity in the U.S. in 2014, but severe storm activity continued in different areas in both the spring and winter months. Despite it being a relatively minor year for catastrophes, the winter of 2014 has been proven to be an expensive one for the insurance industry. Severe cold, ice, and snow hit many parts of the U.S., driving up vehicle accidents and repair volumes.

With continued strong new vehicle sales, improved employment, and low gas prices, collision and liability loss frequency ramped up, and has essentially returned to pre-recession levels.

The outlook for 2015 remains the same. With the exception of storm or catastrophe-related claims activity, it is unlikely the market will see any dramatic change in the current patterns of claim frequency over the next 18 to 24 months. Expect further moderate increases in frequency over the short term as more new vehicles hit the road and one another, with the long term trend still a gradual decline due to demographic changes discussed and further market penetration of accident avoidance technologies.

Vehicle Repair Costs

Crash Course 2014 Trend

From a claim cost perspective, outside of the changes in comprehensive losses tied to erratic weather patterns, loss costs for liability and collision appear to be returning to their pre-recession levels of year-over-year increases of approximately one to three percent.

Moderate pressure on part costs, plus more part replacements per claim are one of the primary factors lifting overall repair costs. A slight increase in labor hours per appraisal (mostly replace labor hours), and moderate increases in labor rates, are also contributing to increases in vehicle repair costs.

January 2015 Update

As complexity of vehicle construction has increased to meet consumer and regulatory demand regarding safety, fuel efficiency, and passenger comfort and convenience, so too has the vehicle repair. Increases in labor hours per appraisal and repaired or replaced parts per claim coupled with inflation in parts' costs and labor costs will continue to drive repair costs up in the future. Historic trend points to increases of two to four percent in the coming year.

Total Loss Vehicle Values

Crash Course 2014 Trend

Overall all total loss vehicles saw an increase in value of 0.8 percent for 2013. This represents a significant slowdown in the rate of increase experienced over the last several years, as total loss values rose in concert with rising used vehicle prices. A combination of higher demand and lower supply for used vehicles lifted used vehicle prices in the U.S. over the last several years. However, used vehicle prices remain elevated from pre-recession levels; as the marketplace is still recovering from a 21 percent drop in the supply of used vehicles up to eight years of age between 2007 and 2013.[x]

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 and prices elevated, particularly for those older vehicles that will not see any significant supply improvement in the next several years. This will keep total loss costs elevated in 2014, though further, large increases aren't anticipated. With more than 70 percent of total losses for vehicles aged 7-years plus, total loss costs will remain high.

January 2015 Update

Total loss vehicle values experienced moderate increases in 2014, with current model year vehicles (higher average industry MSRP's) and vehicles 7-years plus experiencing the largest increases. Comprehensive total loss values saw the largest increases, reflecting the impact of numerous large hail losses in states such as Colorado and South Carolina.

Increases in used-vehicle supply in 2015 for newer model year vehicles from lease and rental returns should help temper prices on younger model year vehicles. The continued shift in consumer taste to light trucks, specifically full-size pickups, crossovers, and SUVs, as well as luxury vehicles will, however, continue to raise the average vehicle value. With more than 70 percent of total losses for vehicles aged 7-years plus, where increases in subprime buyers continues to drive demand and therefor price, expect total loss values to remain elevated or flat in the coming year as well.

Total Loss Vehicle frequency

Crash Course 2014 Trend

The disruption in the pattern of 16-17 million new vehicle sales that coincided with the recession created a break in the historic sales cycle that essentially led to greater disparity within the vehicle fleet. With fewer new cars sold, the average age of vehicles increased to 11.4 by 2013.[xi] The aging vehicle fleet has been a major driver behind the increase in vehicle total loss frequency over the last several years.

In its forecast for all U.S. vehicles in operation through 2018, Polk forecasts that we'll see a significant increase in vehicles ages 0 to 5 years, a 20 percent or more decline in vehicles ages 6 to 11 years, and a moderate increase of 11.6 percent for vehicles aged 12-years-or more.[xii] If those same rates of change occur within automotive claims, the industry could experience a decline of nearly one percentage point in the overall frequency of total losses.[xiii]

January 2015 Update

Total loss frequency remained elevated in 2014 as claims volume (like the U.S. vehicle fleet) remained skewed towards older vehicles. Record low scrappage rates mean the U.S. will continue to see many older model year vehicles still on the road, despite increases in new vehicle sales.

The outlook for 2015 remains the same – total loss frequency will remain high until new vehicle purchases help drive down the average age of vehicles on the road in the U.S.

This insight was compiled using research and information from a wide range of sources and an aggregated set of data from CCC's data warehouse, which includes approximately 140 million claims worth of information. CCC Information Services, Inc. is committed to sharing our insights and keeping the industry informed; our Crash Course 2015 report is being compiled and will be made available soon on our website.



ii Ibid.


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