Brower details how inflation is impacting severity as parts and labor costs have increased. Examines how auto insurance companies and the collision repair industry globally are responding.
The impact of inflation on critical cost drivers for the auto claims and collision repair industries has increased claims severity across the globe. As CollisionWeek has reported, key drivers of repair costs, such as used car prices, energy, parts and health care appear in monthly price data from the government have risen dramatically. With collision repair demand and employment at record levels, competition is also driving up labor costs.
To better understand how inflation is impacting the industry, CollisionWeek spoke with Bill Brower, vice president of industry relations for Solera.
In our video interview embedded below, Brower details how inflation is surfacing in its estimate data in North America and globally, as well as how the industry is adapting to improve its operations and efficiency.
“I was just in the grocery store this week and noticed more spikes in food pricing and it seems like everything we purchase these days has increased. So, when you’re looking at repairs, it’s no different,” said Brower in our interview recorded just prior to the holiday break in late December. “The thing that’s unique about Solera is that we operate in over 100 countries. So, we see results here in the US and North America, but also really around the globe. And it’s kind of interesting to compare. So, first of all, we’re seeing some similar trends across the world. Everybody’s facing this rapid increase in inflation.”
According to Brower, the increase in inflation is surfacing in the average estimate cost.
“We operate in the US, Canada, and Mexico, here in North America, and our results are showing over the last two years since 2020, we see an increase in the average estimate cost of over 15%,” said Brower. “Now when you look at that compared to some other parts of the world in the UK for example, we see about 20% increase in severity. And if I go back and look over a three-year timeframe, the UK has dramatically increased about 35%.”
According to Brower, in North America, the growth is being driven by both parts and labor costs.
According to Brower, parts make up about 45% of the estimate total, and is growing. “We see the parts spend per estimate up over 15%,” said Brower.
“The other area that might be of interest to your readers is of course the labor increase. We do see an increase there, not as large as we see in parts,” said Brower. “We see a little over 8% increase since 2020. However, I would caution the audience on this because there’s, from some of our intelligence and data that we’re seeing, there have been more increases in labor rates in the last three or four months, which will start to flow through in these longer-term lookbacks. But overall, it’s a very rapid increase in inflation and of course hitting us in the area of auto repair. And it’s having a large impact on consumers, body shops as well as insurance companies.”
Discussing the impact on auto insurers, Brower stated, “Inflation is really kryptonite to the insurance industry, if you think about it. Most people think about insurance companies having the greatest risk with catastrophes. And we do see that happening.”
“The thing that’s different about catastrophes, they tend to be in one geography, maybe one if it’s in the US, maybe a couple of states are impacted, but one part of the country’s impacted not the entire country. And then it’s also something that happens over a couple of days perhaps, but not something that goes for months,” continued Brower. “Finally with catastrophes, oftentimes insurance companies have reinsurance agreements, so they’re able to recoup some of those losses.”
With inflation at 40-year highs, insurance companies have to look to rate increase approvals in individual states across the U.S., a process that takes time.
“Some states have a rather lengthy approval process, some a very simple process, but it takes a lot of effort to make changes to premiums across the nation. And so for that reason, it takes carriers quite a bit of time to catch up when inflation ramps up as quickly as what we have seen of late,” said Brower. “AM Best, which provides ratings for insurance companies, shows a negative rating for the P&C insurance industry throughout 2023. So according to AM Best, they’re expecting to see these financial stresses to continue for at least another year.”
On the collision repair side of the business, Brower sees opportunities to use technology to help source parts and increase estimating efficiency with AI-driven solutions.