Amplified auto losses: are your limits adequate?
It is a sign of tough times when even the insurance companies are struggling. Inflation is driving up auto insurance losses and combined ratios. The amplified insurance claims have inflated at an even faster pace than the Consumer Price Index (CPI) and the premiums charged by carriers. [1]
According to the American Property Casualty Insurance Association, auto insurers saw $14.9 billion in overall capital losses for Q1 2022. [2] Additionally, Loss Adjustment Expenses (LAE) increased 10% in the first quarter 2022. [3]
The reasons for the capital losses, instead of insurers’ typical gains, were increased frequency and severity of losses. [4] US private passenger auto losses spiked 25% in 2021 from 2020. [5] Claim severity reached a record $5,743 in Q1 2022, up 36.5% from 2020 Q1. [6] The average bodily injury claim severity is up 24.2% in this same period. [7]
Insurers are bleeding as a result, as the increase in premiums was “far below the rate of escalating losses.” [8] The worst part? These trends are expected to continue into 2023 or longer. [9]
What does this mean for you as an auto insurance buyer? Bodily injury claim severity is up, therefore, state minimum limits are not adequate. Inflation does not only apply to food and energy; it spans across a multitude of prices. This includes the cost of insurance claims, which have outpaced premiums and CPI. Consult with us to review your limit adequacy.
References
The New Normal? Auto Insurers Continue to Struggle with Inflation. American Property Casualty Insurance Association. (n.d.). Retrieved November 4, 2022, from https://www.apci.org/media/news-releases/release/73542/