Rising inflation rates are putting pressure on insurers. As prices increase and labor shortages persist, repairs become more expensive and time-consuming, and this can result in surging claims costs. Insurance loss ratios may suffer as a result. Insurers can’t stop inflation, but they can take steps to ensure that their claims systems are as speedy and cost-effective as possible.
The Spike in Costs
Prices have been climbing. Inflation is often measured using the Consumer Price Index, and according to the U.S. Bureau of Labor Statistics (BLS), the Consumer Price Index for All Urban Consumers increased 8.6% over the 12-month period ending in May 2022. Energy costs in particular have surged. Over the 12-month period, energy costs are up 34.6%, while energy commodities are up 50.3% and fuel oil prices are up 106.7%.
Car Repair Costs
The world is currently experiencing a major microchip shortage. The microchip supply chain issue is impacting a wide range of goods, but the effect on vehicles may be most notable. According to Consumer Reports, experts previously expected the shortage to last into 2023, but now it looks like the problem may not be resolved until sometime in 2024. As a result, car makers are having a harder time making cars, and 2021 car production dropped below pre-pandemic 2019 levels by more than 1.7 million vehicles.
Cars.com explains that the inventory shortage is also impacting vehicle maintenance and repair. Because it’s become more difficult to purchase a new vehicle, more people are deciding to keep their current vehicles, and the average age of vehicles on the road has risen. Older cars tend to need more repair and maintenance, so this has resulted in increased demand for these services. As a result, repair facilities are busy, and they may be charging more.
At the same time, a shortage of parts and workers can drag out repairs. According to IMR, all automotive repair shops say that vehicle servicing and repair is taking longer than it did before the pandemic, and 15% of shops say it’s taking a lot longer. Shop turnaround times have increased by an average 1.5 days.
Building Costs
Building materials have seen massive price increases since the pandemic. Lumber in particular has seen major price fluctuations.
According to the College of Natural Resources News from NC State University, lumber prices reached $1,686 in May 2021. That’s an all-time high, and it’s four times more expensive than the cost seen just one year earlier. This price surge had a major impact on building costs, and the National Association of Home Builders said that the cost of a new single-family home went up nearly $36,000 as a result.
If homes are more expensive to build because of material costs hikes, homes are also more expensive to repair. This can impact claims costs.
Labor Shortages and Costs
It’s not just things that cost more right now. It’s also people, or rather, the labor that people provide.
Quit rates have been very high, and employers have been scrambling to find enough workers. At the same time, workers are dealing with their own rising costs due to inflation, so they need to earn more to shore up their personal finances. This has put pressure on companies to increase wages.
According to BLS, wages and salaries for civilian workers increased 4.7% over the 12-month period ending in March 2022. For the sake of comparison, wages and salaries only increased 2.7% in the 12-month period ending in March 2021.
Labor costs more. This means that services, such as repairs and renovations, will also cost more. Whether you’re working with independent contractors or companies that employ workers, you’ll likely see an increase in labor-related costs.
The Overall Impact on Insurance
Inflation is impacting everyone, and that includes individuals and companies. While families are dealing with rising gas and food costs, insurers are dealing with rising claims costs.
Whether it’s due to increased labor costs or spiking material and part prices, claims are more expensive to resolve. As the claims mount, so do the costs and the loss ratios, eating into insurer profitability.
Better Claims Systems Can Lower Costs
You can’t control the rising costs of goods and services, but you can make sure your claims management processes are as efficient as possible.
For example, claims handlers often spend a lot of time on manual tasks. Time is money, so this work adds up and impacts the insurer’s loss ratios. By automating tasks, claims handlers can reduce the time spent on claims, and the insurer can see the savings.
The savings add up. If you have five employees and they each spend 20 minutes a day on tasks that could be automated, that’s 500 wasted minutes a week and 26,000 wasted minutes a year – or roughly 433 hours. If you multiply that by your average wage – for sake of example, let’s say $40 per hour, you’ve saved $17,300 – and that’s just the tip of the iceberg. In reality, most claims professionals spend much more than 20 minutes a day on tasks that could be automated.
There’s another side of this calculation too. Every hour spent on manual tasks is an hour of opportunity lost – an hour that your team could have spent generating revenue, detecting fraud or improving the policyholder experience.
Better Claims Management Platforms Can Speed Up Claims Processes
Policyholders don’t like it when their claims drag on. In fact, the J.D. Power 2022 U.S. Property Claims Satisfaction Study found that customer satisfaction levels fell to a five-year low, and insurers were struggling due to longer cycle times and material and labor shortages.
Once again, there’s not much that insurers can do about the overall supply chain and labor issues. However, insurers can make sure that their claims processes are as quick and efficient as possible. A speedy process can help keep claims handling costs under control while boosting customer satisfaction.
It’s Time to Act
High inflation rates and labor shortages might be with us for a while, and the worst may be yet to come. Kiplinger predicts that inflation will peak at about 9% around the end of summer. After that, inflation will fall gradually, at it may be around 8% at the end of 2022 and around 3% to 4% in 2023. That’s better, but it’s still high.
Insurers need to face this situation head on. Some economic realities are outside of your control, but your claims handling processes are an area where improvement is possible. VCA offers cost effective claims management software. See how much you could save by adopting better claims systems. Request a cost benefit analysis.
