Inflation and growing accident frequency & severity are expected to continue pushing up costs for policyholders and auto insurers alike.

By Steve Hallo 

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“We always have some type of inflation year-over-year, but when you have this rapid increase in inflation like we’ve seen over the past couple of years it is like kryptonite for insurance companies,” says Bill Brower, vice president of industry relations, vehicle claims, at Solera. (Credit: GITTI.NUNCHO/

During the course of 2022, personal auto insurance rates increased 9%, according to Insurify, which projects rates to increase another 7% by the end of 2023 as inflation as well as more frequent and severe accidents continue to drive up costs for insurers and drivers alike. By the end of 2023, the average annual cost of car insurance is expected to reach $1,895.

Insurify’s report found 47% of drivers saw at least one auto insurance rate increase during 2022, while almost 1 in 5 said they had multiple rate increases during the past year.

“Many of the factors that contributed to rate increases in 2022 will continue to be in play for American drivers in 2023,” Snejina Zacharia, Insurify’s CEO and founder, said in a release. “Our annual data reflects the state of the insurance industry, and our new report projects that higher driving rates, more severe accidents, inflation’s impact on vehicle repairs and medical costs and the potentially increased frequency of wildfires and hurricanes will continue to be the key factors contributing to rate increases next year.”

Although rates are rising, Bill Brower, vice president of industry relations, vehicle claims, at Solera, tells auto insurance companies are unlikely to see operating profits in the year ahead.

“We always have some type of inflation year-over-year, but when you have this rapid increase in inflation like we’ve seen over the past couple of years it is like kryptonite for insurance companies,” Brower says. “A lot of time we think of catastrophes as the greatest risk. You hear about a bad storm and there are a lot of costs for insurance companies. That is true. But a catastrophe is isolated, it happens over a day or maybe a week, but inflation continues across the entire book of business for months or longer.”

He also points out that unlike catastrophes, there is no reinsurance to offset the impact of inflation.

However, Brower notes the North American market is handling inflationary pressures better than areas around the globe. North America, including Mexico and Canada, has seen repair costs increase a little over 15% during the past two years. During the same time, the U.K. has been up about 20%.

Fighting back against inflation’s bite

Although inflation is expected to hang around in 2023, Brower says there are ways that insurance carriers can alleviate some of the sting.

As auto parts can make up as much as 40%-50% of repair costs, depending on region, considering lower-cost parts, but still of quality, is one method reigning in claims costs, Brower says, adding: “Some of the repair costs are really going to be difficult to manage though. The parts and labor are going to be what they are going to be.”.

In addition to trying to control costs on the indemnity side, or the cost to repair the auto, insurers should also look at the expense side, or the costs associated with evaluating a claim and deciding what to pay out.

“That is an area where I am seeing insurance companies moving more quickly to areas such as photo estimating, we also call it virtual estimating,” Brower says, explaining this can triple or quadruple the number of claims an adjuster can handle compared to if they had to inspect a damaged vehicle in person.

A third way to fight back against inflation is to offer policyholders more self-service options, which consumers seem open to using. A survey from Solera found that more than half of policyholders around the globe that had a claim have submitted photos during the claims process.

Telematics can lower costs, but privacy concerns linger

For drivers trying to lower their auto insurance bills, Brower suggests looking at adjustments to the deductible or copay on a policy. However, the policyholder should know and be willing to take on the additional risk.

“Another thing that customers might decide to do more of is user-based insurance (UBI),” Brower tells PC360. “If the person is a good driver and they are willing to allow the insurance company to track their driving behavior through a telematics program they might be able to get a bit of an offset by changing the way their policy is rated.”

According to Vickie Kilgore, assistant vice president at the Insurance Research Council, 63% of policyholders said their auto insurance costs dropped after they enrolled in a telematics program.

“In addition, telematics programs provide feedback for how participants can improve their driving,” Kilgore says. “Our data shows that 80% of respondents changed their driving behavior after participation in a telematics program. By encouraging safer driving, telematics programs allow for more affordable insurance and can help save lives.”

When it comes to telematics programs, consumers are showing a growing preference for programs that leverage smartphone apps instead of plug-in devices or dongles, the Insurance Research Council found. Almost 70% of drivers in a telematics program participate by using a smartphone.

Further, 54% of drivers expressed a clear preference for smartphone-based UBI programs when asked to consider future participation. Less than 30% said they would prefer another technology, while 19% had no preference.

Drive awareness of telematics programs and acceptance of them is increasing. According to a survey by the Insurance Research Council, 66% of insureds invited to participate in a telematics program sign up.

However, allowing an insurer to track their driving behavior and other data is a permission not every policyholder is willing to grant. Among the 34% of policyholders that declined an invitation to a telematics program, 54% said no because of privacy concerns.