How will the events of 2023 affect 2024 when it comes to collision claims? To find out, Enlyte interviewed Mitchell’s director of claims performance
Editor’s note: The following is excerpted with permission from the Enlytened Trends Report 2024, which can be downloaded in its entirety here.
San Diego—Claims frequency and severity were on the rise in 2023. Those trends — combined with an already stressed parts supply chain and an unprecedented autoworkers’ strike — created a perfect storm of uncertainty for insurance carriers, collision repairers and vehicle manufacturers going into the new year.
So how will the events of 2023 affect 2024 when it comes to collision claims? To find out, Enlyte interviewed Ryan Mandell, Mitchell International’s director of claims performance.
Enlyte: Collision claims declined following the start of the pandemic. What do the latest numbers tell us?
Ryan Mandell (RM): To really understand the trend, we need to evaluate data that is mature and that means taking a closer look at the first half of 2023. Claims volume is 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 over-reliance on ADAS technology by drivers who may be more focused on their smartphones or infotainment systems than the road ahead.
The same is true for claims severity. At the start of last year, we expected used vehicle values to 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 — although below the peak of $50,000 at the start of 2023. These higher prices have raised the total loss threshold for insurers, which means that more collision-damaged vehicles are likely to be repaired now versus declared a total loss. As a result, average repairable severity is above where we would normally expect it to be.
Enlyte: Rising repair costs are a key concern this year. Is there any end in sight?
RM: 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 repariable 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.
It is a similar story in Canada with average repairable claim costs of $5,044 (CAD) for the first half of 2023, which is a year-over-year increase of 12%. Canadian EV adoption has been greater on a percentage basis, which is contributing somewhat to the faster growth rate given that these electrified automobiles have a higher average cost of repair.
By the time the data is mature, I would expect to see the average repairable claim cost at around $5,000 in the U.S. and $5,300 (CAD) in Canada. In 2024, those numbers will likely grow, potentially exceeding $5,500.
Enlyte: What factors are contributing to the cost increase?
RM: Parts now represent a greater share of the total estimate—growing by roughly 1% each year. One reason for this is that the average number of parts used in each repair has risen. 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. At that time, we saw the top 150 commonly replaced parts increase in price by just about 17%. In 2023, prices stabilized, and the growth was closer to 10% for the top 150 parts. OEM part prices are obviously also impacted by inflation, but not to the same degree. In 2022, OEM parts rose 11% in cost.
The difference between aftermarket and OEM part prices was less pronounced last year, with just three percentage points separating the two. This year, we will likely experience single-digit price increases for both. However, that will largely depend on the final effect of the autoworkers’ strike.
Enlyte: How do trends in parts utilization play a role in collision repair economics?
RM: 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. I would expect a slight increase in the percentage of parts dollars spent on aftermarket parts through early 2024.
Parts utilization for recycled parts has been consistent over the last few years. Typically, there is not a lot of movement and these parts, on average, represent 8.5% to 8.75% of the parts dollars spent. The 2023 numbers jumped to 9.4% after being at 8.4% at the beginning of 2022. While that may not seem like a lot, it is notable when you are referring to utilization.
I believe this growth can be attributed to the supply chain disruptions that continue to affect the industry — and may for some time. To help mitigate the impact and provide some relief, automotive recyclers are spending more time on marketing their inventories. This is obviously designed to drive sales and may help them chip away at the market share of OEM and aftermarket parts — especially when those parts are not readily available.
Enlyte: Are more parts being repaired or replaced?
RM: Repairability has slowly decreased 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%.
Enlyte: What about ADAS and their impact on repairability and costs?
RM: 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.
ADAS are also affecting the overall cost of vehicle repairs. Why? They require recalibration of the complex radar, ultrasonic, LIDAR and camera sensors used for everything from pedestrian avoidance to driver drowsiness detection. Even one degree off alignment could cause the sensor to miss a target or object by feet.
To help ensure these systems are returned to pre-accident condition, collision repairers must perform a dynamic and/or static calibration. Performing the calibration adds time and expense to the repair, especially when the collision facility does not have the tools or expertise to complete the work onsite and must, instead, sublet the work.
In the U.S., calibration frequency is 17% for repairable vehicles. In Canada, it is just over 10%. I anticipate that number will increase significantly in 2024 and, potentially, reach 40% by the end of next year and even 60% by the end of 2025 with the U.S. likely reaching those percentages first. 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 and, as mentioned, that 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 auto body shops interested in bringing the work in-house and maintaining control over cycle time.
Enlyte: Aside from parts and vehicle complexity, what else is contributing to the additional repair expense?
RM: Over the past year, we have witnessed a dramatic increase in labor rates. The U.S. national average has gone from $55 to more than $59 an hour for body work alone and Canada has jumped from $72 (CAD) to north of $75 (CAD) an hour.
Traditionally, labor rates increase slowly—much more slowly than the 7.5% growth we experienced in early 2023. I expect that will be the case in the future for all labor operations, including frame and refinish. Combining this additional labor cost with inflation, ADAS and the introduction of lightweight materials used in vehicle construction has created a significant underwriting challenge for insurance carriers.
Enlyte: What are three things that insurers, repairers and OEMs should watch for in 2024?
RM: I touched on several of these already, but diagnostics is a big one. Calibration frequency will continue to grow as we get closer to 2018 being the average model year for repairable vehicles. Insurers must be prepared from an underwriting perspective and auto body shops must invest in the equipment and training needed to perform the work themselves — or risk losing the profit margin to a sublet.
The average cost of repair will also remain high this year. I expect an increase of 8% to 10% year over year for the foreseeable future. Subsequently, insurers may be forced to adjust premiums as they look to balance expenses with profits. For auto body shops, leveraging technology to expedite key steps in the repair process can help boost efficiency, reduce cycle time and control expenses.
Finally and not surprisingly, escalating costs are having a downstream impact on consumers. Despite remaining stable for a very long time, the average deductible paid on a first-party claim has jumped to $670 in early 2022 and $697 just a year later. While a $27 increase may not seem like much, the change could be a byproduct of the cost of insurance and repair — signaling that consumers are increasing their deductibles to afford rising premiums.
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