Just when we thought we had gotten through 2020, 2021 was just as crazy, and here we are in 2022 and things have not stopped. Each week seems like there is a new development in some part of the world, our country, and Lancaster County. As insurance professionals, we wanted to do a recap of what we saw in the car insurance industry in 2022.
1. The “New Normal” of Driving Habits:
The term “New Normal” has been used to exhaustion, unfortunately, it applies in this situation. Quick background, if you had an auto insurance policy in Lancaster PA in 2020 you most likely received a “refund” from your insurance company for not driving. We were locked down in March and auto accidents almost ceased to exist since there were very few cars on the road. The refund was for a few months of auto premium, typically a few hundred dollars. This was a great goodwill play by the insurance companies to assist their customers in tough times, and the funds were available since they were not paying claims.
Fast forward to the reopening and the auto claim-free period quickly came to a screeching halt. Insurance companies realized that as soon as the restrictions were lifted, and people could get it back on the road, things got crazy. Maybe you’ve even noticed it driving around in Lancaster or Lititz, that it seems like people’s aggression and driving habits have gotten worse. Insurance companies, telematic companies, and government agencies now have data to back our experiences up. Ever since the reopening in 2020 driving habits have gotten incredibly and increasingly worse than they were even at pre-pandemic levels. These habits have only continued in 2022. We are seeing an increase in aggressive driving, speeding, drinking, and driving, and overall, more reckless behavior behind the wheel.
To no one’s surprise, these behaviors have led to increased accidents. The way the insurance industry measures accidents and payouts is something called the Loss Ratio. This loss ratio reached its highest point in over 20 years in the second quarter of 2022 at 78.4%. Insurance companies would ideally like to be below 60%. We have also seen an increase of 10% in the number of traffic fatalities in 2021. Those numbers in 2022 have not fully come out yet, but they are looking to be maybe even higher than in 2021. Aggressive driving has also led to more pedestrians, bike riders, and motorcyclists being killed by vehicles this year.
Whether it’s people on their phones, or just being more aggressive, we do not fully know what is causing this behavior. Unfortunately, the numbers are showing that people are driving more carelessly and accidents are increasing in 2022 in both the US and Lancaster County.
2. Increased Cost & Time of Repairs:
The second way car insurance changed in Lancaster in 2022 is that the cost of repairs increased dramatically. Inflation has been a hot topic as of late and the insurance industry is feeling its impact. We are still feeling the effects of the backlog of supply chain issues, and labor shortages. Repair shops are caught in the crosshairs of both issues. Research has shown that the cost to repair your vehicle in 2022 has increased by 43% from 2021. This is a dramatic spike and is well above the current inflation rate of 7.7%. We are also seeing an increase of 32% in the cost of auto parts in 2022. That increased cost is also not taking into consideration the longer than normal wait for the repair shops to get the parts in their doors. This pushes over the next expense domino of the rental car for insurance companies.
Most car insurance policies in Lancaster will provide a rental car for you while your car is in the shop being repaired. If you have tried to rent a vehicle in the past year you will know that is it not only more difficult to find one, but the price has also increased. During the pandemic, many rental car companies offloaded a majority of their fleet not knowing what was in store for the travel industry. They could also sell their cars for a premium so they took advantage of it. They were not able to restock their fleet to meet the renewed demand for rental cars. This inadvertently affected the insurance industry trying to find a rental for their customers after an accident.
Typically, it would take 2-5 days for your car to be fixed after an accident. In 2022 that number jumped to 18 days. That means 13+ additional days the insurance company had to provide and pay for a rental car for its customers. In Lancaster PA the average rental car costs $83 a day, which equates to an almost $1,200 difference, per claim that insurance companies had to pay for rental cars in 2022.
From labor costs to the cost of auto parts, increased repair time, and more expensive rental cars have led to an expensive time to be in the auto insurance business.
3. Increased Cost of New and Used Vehicles – Gap Coverage
The third way auto insurance has changed in Lancaster, PA, in the United States in 2022 is that both new and used car prices are continuing to go up. We thought 2021 would be a spike, and we would see a reprieve, but 2022 has been right on the same course. In 2022 we saw the cost of new vehicles increase by 26%. With the increased value of vehicles, there is more for insurance companies to insure, and they had to take that into consideration with their rates. This also impacted used cars which according to Cars.com increased 47% over the course of the last three years.
Insurance companies are contractually obligated to restore you to your pre-loss conditions. With auto insurance, companies will use the KBB value of vehicles when determining the cost to replace your vehicle. We have seen in 2022 that people have been receiving more for their totaled vehicles than what they paid. This is yet another factor that is increasing the cost of doing business for auto insurance companies.
Another factor that car insurance customers in Lancaster should take into consideration in 2022 is GAP coverage. GAP coverage is meant to cover the difference between what you owe and what the car is worth, in simple terms. This is an optional extra coverage or endorsement on the auto policy. With the above-stated current condition of the market, we did not see GAP coverage used very often since the price of the used car appreciated.
The star of the 2022 auto insurance recap is unfortunately inflation and the increased cost of almost everything related to fixing your car. We predict auto premiums will reflect this in 2023 and auto insurance customers in Lancaster can expect an increase of 5%-15% depending on which insurance company you are with.
If you have questions about your policy, pricing, your coverages, or what’s going on in your own policy, feel free to reach out. Even if you are not one of our customers, we’re happy to do an evaluation for you. Car insurance in Lancaster, PA is going to get more expensive in 2023 and we would be happy to help people in Lancaster save money on their auto insurance premiums.
We have offices in Lancaster PA, and Lititz PA so stop in or give us a call @ 717-290-7780