Insurers may need to adapt to higher auto claim severity. LexisNexis says that claim severity and complexity have been rising steadily since the COVID-19 pandemic. Since 2020, bodily injury claims have increased by 20% and material damage claims have increased by 47%. While this is bad news, an efficient claims system can help manage complex claims and keep costs under control.
Here’s a look at the factors behind the increase in auto claim severity and what this trend means for claims processes.
Reckless and Distracted Driving Are More Common
Distracted driving has always been a problem, but smartphones have made it worse. It’s dangerous enough when people talk while driving. It’s even worse when they look at their phones to send text messages or check social media.
Drivers in all age groups are guilty of this, but young drivers are especially prone to distracted driving. LexisNexis says distracted driving increased by 10% across all age groups and by 24% among Gen Z drivers between 2022 and 2023. Speeding also increased by 16%.
More Drivers Are Lawyering Up
If claimants don’t think they’re being treated fairly, they may seek legal representation, and that can add to overall costs. LexisNexis says 85% of claimants were approached by at least one lawyer following an auto accident, and when lawyers get involved, settlement amounts increase 51% of the time.
Even Fender Benders Can Be Expensive
A minor fender bender might not attract the attention of lawyers, but it can still be expensive. Two key issues are driving up repair costs for even minor claims.
First, repair times have surged. J.D. Power says the average auto insurance repair cycle time climbed to 23.1 days in 2023. That’s more than double the average time in 2021. In addition to contributing to claimant dissatisfaction, long repair times can lead to extra costs. For example, if coverage includes a rental vehicle, a longer repair time means the insurer has to pay for a longer rental.
Second, the high-tech sensors found in many modern cars can be pricey to replace and calibrate. According to S&P Global, an accident could stop a car’s driver-assist or crash-avoidance system from working. As these systems become more common, the need for repairs is increasing, and that’s putting strain on repair shops. Furthermore, repairs that used to be cheap can now be costly. For example, Kelley Blue Book says it can now cost more than $1,000 just to replace a windshield due to rain-sensing wipers and advanced driver assistance systems.
Extreme Weather Adds to the Problem
The rise in extreme weather severity and frequency isn’t just a problem for homeowners insurance and commercial property insurance. It’s also an issue for auto insurance, and it could be adding to overall claims severity.
A storm can cause water and hail damage to cars, and drivers with comprehensive insurance coverage can file claims for these losses. After a large storm, insurers may be overwhelmed with claims. The Washington Post says up to 500,000 cars were destroyed by Hurricane Harvey.
Storms can also contribute to bad road conditions and collisions. The U.S. Department of Transportation says that approximately 21% of all crashes are weather-related. That’s 1,235,000 crashes every year.
How Can Insurers Adapt to Rising Claims Severity?
When claims costs rise, insurers tend to respond by raising premiums. Unfortunately, if prices go up too much, policyholders may leave. This is already happening. LexisNexis says U.S. auto insurance shopping has reached “nuclear” levels. If insurers want to retain more policyholders, they need to find other ways to control rising claims severity. The right claims system can help.
Here’s what an efficient claims system can do:
- Control claims costs by shortening claims cycle time. A claims system that automates workflows and reduces tedious tasks can help claims close faster, and that helps keep total costs down.
- Prevent the escalation of claims by closing claims as quickly as possible and supporting transparent communication. If claimants are left in the dark, they may decide to lawyer up. A good claims system can help prevent this by providing claim status updates and facilitating communication.
- Boost policyholder retention by providing a positive claim experience. Losing policyholders after spending money on a claim is like adding insult to injury. It’s also common, especially if the claim experience was less than exceptional. A claims system that supports a positive claimant experience can help insurers avoid policyholder churn and associated losses.
VCA’s claims management system streamlines and automates your workflow to improve the policyholder experience and reduce time to close. Request a demo.
