Spending

Car insurance payouts are now 17% more than they were pre-pandemic

"You're seeing carriers write larger checks because the vehicle values themselves are rising."

Share
Twenty/20

If you're hitting the road this Thanksgiving holiday, you'll be in good company: Some 48.3 million people are expected to travel by car in the coming days, an 8.5% increase from 2020, according to AAA. That estimate follows a broader trend that you've probably noticed if you've gotten behind the wheel lately: Traffic is nearing its pre-pandemic levels, if it hasn't surpassed them altogether.

Automobile traffic dropped precipitously in the spring of 2020 when many people stopped commuting to work. Since then, however, the number of drivers on the road has slowly been ticking up.

And as more cars have gotten back on the road, the amount that insurers are shelling out when policyholders make claims after accidents is going up, too, says Tom Super, head of property and casualty insurance at J.D. Power. "They're getting higher payouts for settlement," Super says. "We're estimating about 17% higher than what they were going into the pandemic."

Cars are more valuable than they were pre-pandemic, including 'total losses'

There are two main reasons that payouts have risen so much and so quickly, Super says. For starters, cars are worth more than they were before the pandemic. Supply chain shortages, particularly for computer chips, has stopped many new cars from getting off the assembly line. That has pushed prices for both new and used cars to historic highs.

The price of used cars, for example, jumped 7% between April and May this year, and then jumped another 10.5% the next month.

"The vehicle values themselves are rising," which has big "downstream" effects, Super says. For example, even when insurers have to write off a car as a total loss, they can sell that car for parts, which are also at a premium right now. "They are getting higher values for the parts on those vehicles. So that's getting pushed upstream to the consumer."

VIDEO4:5704:57
How to avoid common auto loan mistakes

Video by Jason Armesto

Increased costs 'are already hitting insurers' bottom line'

Another big reason car insurance settlements are rising? More vehicles are being written off as total losses after accidents — almost 20%, according to J.D. Power's estimates.

In some cases, that's because accidents became more severe during the pandemic: Despite the fact that Americans drove 13.2% fewer miles in 2020, traffic fatalities actually rose 7.2% from 2019, according to the National Highway Traffic Safety Administration.

Another reason, however, is that more insurers are writing off less severe accidents as total losses, Super says. As vehicles become more complex to repair, accidents that might have resulted in low- or medium-cost repairs just a few years ago are now resulting in totaled cars.

"Think about replacing a fender bender. A couple years ago it was a couple hundred dollars," Super says. "Now you've got sensors and other things that drive up the cost of repairs. Think about a side impact, let's say, for an electric vehicle where you've got the battery running underneath the length of the car."

Think about replacing a fender bender. A couple years ago it was a couple hundred dollars. Now you've got sensors and other things that drive up the cost of repairs.
Tom Super
head of property and casualty insurance, J.D. Power

That kind of repair job is going to require so much expense in both parts and labor that it's easier for insurers to just cut the claimant a check, Super says. That's good for consumers right now, but ultimately, it will mean higher prices as insurers get their pricing schemes up to speed with the technology inside vehicles.

"The insurance industry has traditionally not been at the forefront of innovation, to put it kindly," Super says, and the increased costs of insuring increasingly smarter cars "are already hitting their bottom line today."

New year, new insurance plan?

It's not just settlement claims that are at record highs: Customer satisfaction among people who filed those claims in the last year is higher than it's ever been, according to Super. Those high satisfaction rates mean that insurance companies will be fighting for your business.

Have "the confidence that you're picking a carrier that's going to have a higher level of service than maybe what you may have experienced years and years ago," Power says. If they're not meeting those expectations, find someone else that will meet them because the industry is making improvements every day."

If you aren't satisfied with your car insurance policy, however, the end of the year can serve as a great reminder that it's time to shop around. In fact, studies show that reshopping your car insurance and tweaking your policy to better suit your current driving needs can save you hundreds of dollars a year.

More from Grow: