Why auto insurers are more likely to declare cars totalled

Is that car worth repairing?

Given ongoing supply chain disruption and high inflation rates, the answer for insurers may increasingly be ‘no.’

“We see significant increases in rental costs,” said Kumar Siva, senior vice president for third party administration services and desktop solutions at Sedgwick, told Canadian Underwriter. “Extending rentals due to delays in parts delivery adds to the claims’ overall costs.

“Some insurers must decide whether to [declare] vehicles as a total loss instead of repairing due to significant delays in getting the vehicle repaired.”

Among the things causing delays are difficulties acquiring bookings for repair appointments at insurance-preferred shops.

Siva noted this has created a negative experience for policyholders.

Back in May, Intact Financial Corporation said it expected the impact of inflation on personal auto to abate. During a 2023 Q1 earnings call, the insurer’s senior executives said it had levers in place if the uncertain economic environment throws another curveball.

“There’s an expectation that inflation [will] abate some more,” Intact Financial Corporation CEO Charles Brindamour said during the 2023 Q1 earnings call. “If that [is] not the case, or if things are going the other way…then we have leverage to move rates if we feel that severity is not abating at the speed at which we’re hoping for. But we’re getting in the zone, there’s no doubt.”

When it does become more cost-effective to declare a car a total loss, Siva noted that efforts to get insured clients into new cars kicks off a whole new round of difficulties.

“Policyholders are not able to find a replacement vehicle, given the supply issues,” he said. “[They] are on back-order for six-plus months.”

Tight supply chains have also created a hot domestic market for stolen vehicles, which in 2022 cost Canadian property and casualty auto insurers more than an estimated $1 billion — the most the industry has ever paid for auto theft in one year.

“The industry in Ontario paid more on vehicle theft claims in the first half of 2022 than in total for 2020, and the national trend data anticipates losses will continue to grow,” said a new report by Équité Association.

That trend is accelerating this year. Auto theft during the first three months of 2023 exceeded that of 2022 Q1, Bryan Gast, Équité Association’s vice president of investigative services, told CU in May. “And last year was the highest year that we’ve ever seen, so 2023 is shaping up to be a very bad year.”

Feature image by iStock.com/RobertCrum