Claims frequency and severity were on the rise last year. Those trends—combined with an already stressed parts supply chain and an unprecedented autoworkers' strike—created a perfect storm of uncertainty for auto insurance carriers, collision repairers and vehicle manufacturers going into the new year. How will the events of 2023 affect 2024 when it comes to collision claims? Here are seven trends every
- Claims volume keeps increasing. Collision claims are up by approximately 1% compared to early 2022. Despite more cars on the road equipped with Advanced Driver Assistance Systems (
ADAS ), vehicle owners are still getting into accidents. Distracted driving is to blame for some of these collisions, as is an overreliance on ADAS technology. - The average cost of repairable claims is also rising. There are certainly a lot of variables driving up the cost of proper and safe vehicle repairs. In early 2023, the average cost of a repairable claim in the U.S. exceeded $4,700—an increase of approximately 8% compared to the first six months of 2022. Generally, annualized growth is between 3% and 5%, so that is a big jump. Expect an increase of 8% to 10% year over year for the foreseeable future.
- More collision-damaged vehicles are likely to be repaired versus declared a total loss. At the start of last year, we anticipated that used vehicle values would drop. Thanks, in part, to the United Auto Workers strike and its lingering effect on inventory, prices remain high. Additionally, at nearly $47,000, the average cost of a new vehicle in the U.S. is also high. These higher prices have raised the total loss threshold for auto insurers, which means that more collision-damaged vehicles are likely to be repaired now versus declared a total loss.
- Repairability will continue to slowly decrease over time. One reason for this is the vehicle material choices manufacturers are making. Although it is possible to repair aluminum body panels, for instance, the material properties of the panel make it more likely that the collision's crash energy created a pattern of damage that prevents a safe repair. In early 2022, 17.5% of parts on an estimate were repaired. In 2023, it was 17.1%. ADAS—which are becoming standard on all new vehicles—are also reducing parts repairability. Take, for instance, the presence of a millimeter wave radar sensor behind a bumper cover. If that bumper is damaged, it could limit the repair options the technician has. To ensure that the sensor continues to function properly, many manufacturers require its replacement.
- Parts now represent a greater share of the total estimate. The number of parts on collision estimates has grown by roughly 1% each year. This is partially due to an increase in the average number of parts used in each repair. Historically, it took four to five years to add one additional part per estimate. It now takes about a year. That is significant, especially since the cost of a replacement part is around $275—an extra $75 more than in 2020. Inflation is partly to blame for these rising costs, although it has slowed from where it once was in 2022—particularly for aftermarket parts. This year, we will likely experience single-digit price increases for both aftermarket and OEM parts. However, that will largely depend on the final effect of the autoworkers' strike.
- Expect a slight increase in the percentage of parts dollars spent on aftermarket parts through early 2024. Thankfully, we are past the cargo disruptions that we experienced at the outset of the pandemic. Those disruptions impacted parts inventories along with everything else. Although today the future of consumer transit is still up in the air and dependent on how employers manage return-to-the-office initiatives over the long term, we do see inventory levels stabilizing for aftermarket providers. Based on the first half of 2023, 21.5% of parts dollars were spent on aftermarket parts, which is an increase of roughly a quarter percentage point from the same time in 2022. That modest increase should continue through early 2024.
- Calibration frequency could reach 40% by the end of 2024. In the U.S., calibration frequency is 17% for repairable vehicles. We can anticipate that number will increase significantly in 2024 and, potentially, reach 40% by the end of this year and even 60% by the end of 2025. One reason for this is the average model year of repairable vehicles. For the first half of 2022, it was 2015. Fast forward to 2023, and it was 2016. When we get to the point where 2018 is the average model year, that will truly be a watershed moment. Most 2018 and newer vehicles include at least one ADAS feature which increases the need for recalibration following repair.
As more OEMs require calibrations for a wider array of accident scenarios, both the frequency and cost of repair will go up. Right now, it is an additional $500 expense, on average, for all calibrations present on an estimate. Although this adds to repair costs, it can also introduce new revenue opportunities for collision facilities interested in bringing the work in-house and maintaining control over cycle time.
Adapting to the road ahead
Based on these trends, it is clear that 2024 will require our industry to be adaptable. For example, with the expected growth in calibration frequency, insurers must be prepared from an underwriting perspective. Collision facilities, on the other hand, must invest in the equipment and training needed to perform the work themselves—or risk losing the profit margin to a sublet. As the average cost of repair remains high, carriers may also be forced to adjust their premiums as they look to balance expenses with profits. And auto body shops should look to leverage technology to expedite key steps in the repair process that can help boost efficiency, reduce cycle time and control expenses.
