Auto insurers in the U.S. are coping with the largest direct loss ratio in 20 years because of factors that include historic inflation, a deterioration in driving behavior and sky-high jury awards, the American Property and Casualty Insurance Association says in a new report.

APCIA said the direct loss ratio for auto physical damage reached 77.1 percent in the third quarter of 2021 — after reaching an historic low of 45.2 percent during COVID-19 business shutdowns in the second quarter of 2020.

The report says traffic levels regained as pandemic restrictions eased and were within 1 percent of pre-pandemic levels in the first half of this year. Along with the return to the roads came a 10 percent increase in the fatal accident rate from 2020 to 2021, the largest percentage increase in history. U.S. private passenger auto losses jumped 25 percent from 2020 to 2021.

“One of the things we ask in the report is, ‘Is this the new normal?'” said Robert Passmore, the APCIA’s vice president for personal lines. “What is the new normal?”

Normal is definitely more expensive. The report noted the inflation rate peaked above 9 percent in July before dipping to 8.3 percent in August. But U.S. auto insurers are facing a variety of additional factors that are expected to continue pushing claims costs up into 2023 or longer.

The report includes several statistics that illustrate this trend:

• Private passenger collision claim severity reached a record $5,743 in the first quarter of 2022, up 36.5 percent since the same period in 2020. Average bodily injury claim severity is up 24.2 percent.

• Personal auto loss ratios climbed to 78.4 percent in the second quarter of 2022 compared to a quarterly average of 65 percent from 2016 to 2020.

• The number of miles traveled on U.S. highways increased to 1.305 billion in the first five months of 2022, up from 1.119 billion during the same period of 2020, according to the Federal Highway Administration. The latest number is only slightly below the pre-pandemic level, which was 1.316 billion miles in the first five months of 2019.

• The traffic fatality rate reached 1.33 per 100 million vehicle miles traveled in 2021, up from 1.1 per 100 million in 2011, according to data from the National Highway Traffic Safety Administration.

• The average verdict for a lawsuit with more than $1 million awarded increased nearly tenfold from 2010 to 2018, rising to $22.3 million from $2.3 million, according to the American Transportation Research Institute. Personal injury judgments increased 320 percent in 10 years, to $125,366 in 2020 from $39,300 in 2010, according to data from Current Award Trends in Personal Injury.

• The number of auto thefts jumped 25 percent from 2019 to the first half of 2022, reaching nearly 500,000 vehicles stolen with losses amounting to $4.5 billion.

The report says auto insurance rates have not increased enough to keep up with increasing costs. Direct written premiums for personal auto increased just 4.6 percent since last year, far below the rate of escalating losses.

Passmore said the ability of insurers to increase premiums is confined by intense competition in the industry. He said APCIA published the report, in part, to educate the public and regulators about the pressures that are forcing insurers to ask for back-to-back rate increases.

At least once consumer advocate is skeptical about the industry’s tale of woe.

Harvey Rosenfield, the founder of Consumer Watchdog in California, said very few insurers reduced rates during the pandemic even though the number of miles driven plummeted. While APCIA says the industry issued $14 billion in refunds to consumers, Rosenfield said a study by his organization found that the industry saved far more than that because of a drastic reduction in claims.

“There was a reduction because our cars were sheltering in place in our driveways,” he said.

Rosenfield said the insurance industry will look for any means necessary to distract the public from its “massive thievery” during the pandemic.

“The insurance industry will use any excuse to argue for the need for them to raise premiums,” Rosenfield said. “It’s all driven by their desire to maximize their profits at the expense of consumers.”

Top photo courtesy of APCIA