Report: Vehicle Complexity, Labor ‘Reshaping’ Auto Insurance and Collision Repair

New technologies and rising labor costs are putting pressure on auto insurance carriers and auto repairers by making repairs more costly and increasing repair times, trends that a new report asserts are “reshaping” the industries.

The bottom-line message: Newer vehicles being produced may be safer from cashes, and better at helping drivers avoid crashes, but the advanced technology is contributing to costlier repairs, higher claims costs and longer cycle times, according to CCC Intelligent Solutions Inc., a cloud operation serving the property/casualty insurance industry.

CCC’s latest report for Q1 2024 is based on information from 300 million claims-related transactions as well as bodily injury and personal injury protection/medical payments casualty claims from CCC’s customers.

These emerging trends have contributed to the 60% increase in the amount of time it takes for vehicles to enter repair shops after estimate completion compared with before the pandemic, the report shows.

Kevin Shumate, vice president, managing director, vehicle services, with Crawford & Co., said the report reflects the ongoing changes in auto repair and auto claims that appear to be causing major changes in the industries.

“I completely agree with pretty much everything that CCC said in the report,” Shumate said.

Robert Passmore, department vice president for policy, research and international for the American Property Casualty Insurance Association, said the CCC report “validates the increasing claims costs that insurers are seeing every day.”

“Auto insurance premiums have been on the rise for the simple reason that the cost of what goes into auto insurance has been rising. Auto insurance claims and expenses spiked to more than $1.12 for every $1 in premium in 2022,” Passmore said.

The report fingers new technologies as one of the biggest cost-drivers, and drivers of greater repair times, such as the higher costs of repairing vehicles with advanced driver assistance systems.

“Today’s average passenger vehicles are highly instrumented,” the report states.

Many newer standard vehicles have 1,400-plus semiconductor chips – that number can be nearly double for electric vehicles – and roughly 30,000 parts. Electronic components like collision warning, driver-assistance safety technologies, advanced driver assistance systems, account for 40% of a new vehicle’s total cost, according to the report.

The number of vehicles with safety features like automatic emergency braking, for example, continues to grow. In 2017, AEB-equipped vehicles coming from U.S. automakers accounted for about a quarter of total production. That grew to 60% by 2019, and was 95% by 2023, the report shows.

Evolving Cars, Escalating Challenges

• Repairs now require more parts, labor hours, and diagnostic operations like scanning and calibration.

• Vehicle parts cost more now thanks to new material types.

• Parts now account for a higher share of overall repair costs.

• Shops are seeing more replace versus repair, demanding different skill sets from repair technicians at higher costs.

• Damage detection upfront is becoming more challenging, leading to an increase in supplements.

• Consumers are experiencing longer repair times and increasing repair costs.

• Claims cycle times and costs are increasing, and as a result, premiums continue to rise.

• The presence of more vehicle technology is not significantly reducing claims frequency or accident severity but is increasing overall costs.

Source: CCC

Electric vehicles are becoming more common in repair assessments as the number of EVs on the road grows. EV repairs cost more and come with longer repair times due to capacity constraints and detailed repair procedures. EVs are also totaled less often, reflecting changing valuation trends, according to the report.

There were fewer than 50,000 new EVs sold in 2013. Last year, more than 1.2 million EVs were sold. EV sales now represent 1.9% of repairable appraisals, while the average repair difference between EVs and non-EVs is roughly 50%, according to the report.

Data from the International Energy Agency shows a total of 14% of all new cars sold globally were electric in 2022, up from around 9% in 2021. IEA’s latest outlook anticipates 14 million EV sales by the end of 2023.

The prevalence of EVs is compounded by increased labor costs. Labor hours per claim are higher for newer models, more and more of which are EVs, a difference that has grown by nearly 40% over the last 10 years. Labor now accounts for 45.5% of total repair costs in EVs three years or newer vs. 35.9% for comparable non-EVs, the report shows.

A number of reports have come out this year to show upticks in claims for EVs.

The frequency of claims submitted for repairable electric vehicles rose to its highest level in 2023, ending the year at 1.97% in the U.S. and 2.86% in Canada, a report out in March from technology and information provider Mitchell International Inc. shows.

Collision repair labor in general has been increasing the past two years, and it may continue going up. Demand for new collision technicians is expected to reach 20,000 per year through 2027, 75% of which are to replace existing positions. Compounding the labor shortage are a growing number of vehicles in operation – an increase of 150 million compared with a drop of 55,000 in the number of service bays, according to the CCC report.

A big trend not in the report, but which is on Shumate’s radar, is the supplement percentage in the claims and repair process.

“The supplement percentage, especially on the newer vehicles, has gone up dramatically, so when you see supplements, that’s going to add to cycle time as well,” Shumate said.

Hidden damage discovered after an estimate is delivered and repairs are underway are likely driving costs even higher, he added.

In the past, one supplement on a vehicle was common, but with vehicles becoming more complex, as noted in the CCC report, these supplemental discoveries after repairs are being undertaken appear to be on the way up.

“I’ve seen two, three, four supplements on some of these really complex cars,” Shumate said. “On some of these more complex vehicles…you can’t write the original estimate and see everything and know everything that’s going on.”

Additionally, a parts supplement can come into play when a part is not immediately available, forcing repair shops to either find a different part or ship a part from overseas.

“I think that definitely adds to this to the cycle time, but it also impacts severity as well,” Shumate said.

Medical expenses are another of several price-driving factors called out in the CCC report.

Severity continues to climb due to significant cost increases for medical bills, particularly for high-dollar procedures like radiology and surgery, despite decreasing treatment duration and procedure counts for injury claims since the peak in 2021, the report shows.

The average amount paid out on third party bodily injury claim has been steadily increasing to the current $25,000 figure. Increases have slowed in the last year, but the cumulative increase over the last four years has resulted in a 35% increase since Q2 2019, according to the report.

Inflation is clearly a factor behind many of the cost increases, noted APCIA’s Passmore.

“Cumulative years of record-high inflation have greatly increased the cost of repairing and replacing cars,” Passmore said. “The increasing sophistication of the technology in today’s vehicles is also contributing to rising costs. Vehicles with advanced technology, like cameras and sensors, require more parts to be replaced, higher labor costs, and additional operations for scanning and calibration of systems. This means that repair costs have risen to their largest year-over-year increase. These more complex and expensive repairs are also taking longer, and that shows up as higher rental vehicle costs.”

Lastly, recent reports have also shown that drivers are engaging in riskier behavior behind the wheel, such as speeding, distracted driving, and impaired driving, which increases injury and collision claims costs and compounds the effects of inflation, according to Passmore.

All indicators suggest elevated auto repair and replacement costs will stretch well into 2024 and potentially beyond,” he added. “Insurers are urging drivers to reduce their risk by avoiding driving behaviors like distracted driving, speeding, and impaired driving that may result in a crash.”