Insurers face inflation, rising auto repair costs, CCC

The average cost of vehicle repairs is increasing, but that doesn’t necessarily mean that auto insurers are more likely to claim full losses after accidents, according to insurance industry watchers and researchers.

This contrast between repair costs and full damage claims is happening now because of the complex balance of other economic factors in the automotive market, says Jason Verlen, vice president of product marketing at CCC Intelligent Solutions Inc., a property and insurance economy cloud platform. from accidents. , which recently published its annual crash course report trends in auto insurance, claims, repairs and driving.

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Jason Verlen, Vice President of Product Marketing, CCC Intelligent Solutions Inc.

“There are a lot of flows here and they are mixed and not always consistent,” he said, adding that they include a decline in car traffic due to the pandemic followed by a rebound as the US emerged from the pandemic and work from home declined. – as well as the symbiotic price fluctuations of used cars versus new cars. The increased complexity and cost of technologies installed in vehicles is a factor, Verlaine says, but not the only factor. In addition, inflation has also contributed to an increase in repair costs, which reduces the profitability of insurers, the report notes.

Verlaine explains that the rise in demand for used cars due to the slowdown in car production due to supply chains during the pandemic has driven up the cost of cars. $10,000 damage to a $7,500 car hits the 75 percent threshold used by some insurers. (The threshold can vary depending on the insurer and insurance rules, which vary by state in the US, which complicates matters.) In a narrower used car market, the exact same car could cost $13,000, so the same damage cost would not meet the threshold, and the car would end up being repaired rather than completely.

The CCC report is based on data collected on more than $100 billion in claims transactions that the company processes through its solutions throughout the year, serving automakers, insurers, repair shops, lenders, parts suppliers and more. From January 2016 to March 2022, the percentage of all claims that were total losses fluctuated up and down around the 20% mark, but has recently been on a downward trend, dropping below 20%, according to the report, Verlaine highlights.

More recently, used car prices have risen again. In the first half of March, according to Manheim index measuring prices on a regular basis, used car wholesale prices rose 1.8% from the February average.


Ellen Carney is Principal Application Development and Delivery Analyst at Forrester Research.

According to Ellen Carney, principal application development and delivery analyst at Forrester Research, trends in auto financing could also affect vehicle costs, which in turn will affect total loss thresholds. “Just in terms of how much underwater people feel about their auto loans, it will certainly affect the total amount of losses,” she says. “If you are underwater in your car and it has been wrecked, you still have to pay this money to the bank or financial companies. This is more than the cost of repairs and wages. We have an auto finance bubble that is about to burst. ”

Against this economic backdrop of the automotive market, the cost of repairs has increased due to technology, but currently does not outweigh the increase in the value of the car. The average car damage claim has risen from about $3,000 five years ago to about $4,000 now, Verlaine said. The reasons for this are more expensive spare parts, especially for computing systems, more complex repair processes, as well as more expensive repair experience and the availability of skilled mechanics.

Car repairs now require an average of 13 parts, compared to 11 previously, according to Verlaine. More than half of the claims now include a diagnostic scan of the vehicle. Replacing a cracked window or windshield used to cost around $100, but cars are now equipped with “smart” glass that can detect where vehicles are around you in traffic and issue lane change warnings and more, the cost of replacing a broken window is now more than about $1,000, Verlaine says.

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“Now there are more than 1,400 semiconductors installed in the average car,” he notes. Electric vehicles double that figure. This is fueling an increasing need for auto repair shops that specialize in those computerized items that the industry paradoxically refers to as “mechanical repairs,” according to Verlaine. Five years ago, such work required 20% of repairs, and now, according to a CCC study, 40%.

“It’s more expensive, and it takes someone who can use a computer to diagnose, repair a car, and make sure it’s done right. It’s a computer job,” says Verlaine.

Another factor in increasing the cost of vehicle repairs is additional damage, explains Charlie Wendlund, head of claims at Branch Insurance. Compounding this problem is the shift in the auto insurance industry from sending out assessors to assess damages to having insurers send photos of the damage from their smartphones, because the photos may not reflect everything that was damaged on the car.

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Charlie Wendlund, CEO of Branch Insurance.

Noah Stevens

“Sometimes it can feel like a car needs to be repaired because the difference between the cost of repairs and the total cost of damages is so big,” says Wendland. “But in the process of additional damage, the body shop understands in the course of this repair that there is additional damage. They go back to the insurance company to say they need X more for repairs. violates the total loss threshold, making your car a total loss.”

Vehicle rentals and vehicle storage fees also increase costs as repairs take longer due to more sophisticated technology, Wendland notes. Labor shortages in the auto repair industry are also exacerbating repair times. According to the Crash Course report, salaries for auto repair workers have grown at a faster rate since the beginning of 2022. From the beginning of 2019 to the end of 2021, the growth rate each quarter was about 3% or lower. In the first quarter of 2022, growth jumped to 5% and then exceeded 7% in each of the second, third and fourth quarters of 2022.

“When you have such a shortage of talent, you have to pay them more, and then it turns around and drives up the cost of labor in those valuations,” Wendland says. “We’re feeling it all over the place, in that stores are experiencing downtime right now due to demand for needed repairs and a lack of talent.”

Despite all the new technology in new cars, their price is not rising as dramatically as the cost of repairing them, CCC’s Verlaine explained. “There is a mass adoption of this technology,” he says. “For car manufacturers, this is economies of scale. This reduces the cost of building these things into the car. But for repairs, it makes cars a lot more difficult.”

Just as consumers and markets may not have anticipated higher repair costs and higher prices for used cars, Verlaine said, insurers have been caught off guard by their premium and claims business model.

“The insurers had a really hard time because they were insuring these cars in terms of the premiums they were charging, based on a time when a lot of those forces weren’t involved,” he says. “They systematically undercharge customers given the amount of money they have to pay for these repairs.” To fill this gap, auto insurers are pushing for higher rates or have already received them from various state insurance regulators, Verlaine notes.

According to Forrester’s Carney, one possible way to stem the surge in repair costs could be the auto parts market. “You will need more spare parts. Maybe they are not new parts, maybe they are used parts, or maybe they are refurbished parts,” she says. “This could lead to lower prices for repairs and spare parts due to access to more refurbished parts.”

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