Thefts and Rising Claim Costs in General Driving Hardening Market for Personal Auto

Vehicle theft rates continue to put pressure on the personal auto insurance market, which suffered an underwriting loss in 2022 even after double-digit rate increases, according to a pair or reports released this week.

CCC Intelligent Solutions said in its year-end report that the number of vehicle thefts in the United States increased 2% in the first half of 2023 after rising 7% in 2022. Total losses as a result of thefts peaked at 4% of total losses in the fourth quarter of 2022 and have exceeded 3% of total losses since the fourth quarter of 2001, CCC said. Total losses from theft were less than 2% of total losses in 2018 and 2019, according to the report.

AM Best said in a market segment report that rising claim severity was a primary driver of deteriorating overall results for personal auto. The combined net ratio reached 112.2 in 2022 — 11 points worse than the combined ratio for the prior year. Insurers have been unable to keep up with rising claim costs. Direct premiums written increased 12.9% in the first half of 2023 compared to the first half of 2022, AM Best said.

The report says the average cost of a private passenger auto claim increased 16% in 2022 to more than $10,000 per claim.

“AM Best-rated carriers have said that they are reassessing their personal auto portfolios and implementing steps to address selection and price adequacy concern, but the time-consuming regulatory process for rate increases, which varies by jurisdiction, has made it difficult for insurers to stay ahead of deteriorating severity trends and address rate needs in real time,” stated David Blades, associate director of industry research and analytics for the ratings house.

AM Best blamed rising claims cost for the hard personal auto market without going into detail. CCC’s report called out auto thefts as “a concerning trend.”

The report says thefts accounted for about 3% of total loss value in the third quarter of 2023, but varied by type of vehicles. For domestic pickups, thefts accounted for 6% of total losses, but for pickups built in Asia, thefts were the cause of only 3% of losses.

Thefts of Asian and European-built cars also were lower: The percentage of total losses was 3.5% for domestic cars but about 3.2% for Asian cars and about 2.4% for European, according to graphics displayed in the report.

CCC said while 85% of stolen cars were recovered, the vandalism needed to break into those vehicles was also a cause of loss. Repairable claims volume for vandalism was up 22% year-over-year in 2022 and was on pace to increase another 10% in 2023.

Thefts of catalytic converters also drove claims. Citing data from the National Insurance Crime Bureau, thereport says there were 64,701 catalytic converter thefts in 2022, four times as many as in 2020. CCC said its data shows that more than 70% of catalytic converter thefts were from cars seven or more years old. The average repairable catalytic converter claim had an average total cost of $1,415.

According to AM Best, claim trends in general were rising for personal auto in 2022. The average claim jumped to $11,102 from $9,542 for the prior year, an 11% jump. The average defense and cost containment expense also increased by 29%, while adjusting and other expenses increased by 18%.

“Even with overall industry results deteriorating, carriers that are ahead of the curve in terms of rate adequacy, pricing sophistication, and technology adoption to augment claims handling will likely have some built-in competitive advantages,” AM Best said.