Rancho Mesa's Alyssa Burley and Account Executive Jeremy Hoolihan discuss how auto insurance carriers are struggling with the effects of inflation.

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Director/Host: Alyssa Burley

Guest: Jeremy Hoolihan

Producer/Editor: Lauren Stumpf

Music: "Home" by JHS Pedals, “News Room News” by Spence

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[Introduction Music]

Alyssa Burley: Hi! This is Alyssa Burley with Rancho Mesa’s Media Communications and Client Services Department. Thank you for listening to today’s top Rancho Mesa news brought to you by our safety and risk management network, StudioOne™. Welcome back everyone, my guest is Jeremy Hoolihan, Account Executive with Ranch Mesa. He specializes in risk management and insurance for the janitorial and maintenance industry. Today, we’re going to talk about auto insurance carriers struggling with the effects of inflation. Jeremy, welcome to the show.

Jeremy Hoolihan: Thanks for having me in the studio, Alyssa!

AB: Of course, it’s good to have you here. So, it’s no secret inflation continues to plague our nation with no end in sight. And, with a consumer price index reaching as high as 9.1% in July of 2022, the trickledown effect is far reaching. How is inflation affecting the cost of auto insurance claims?

JH: That’s a good question, Alyssa. In the second quarter of 2022, the auto insurance marketplace saw a loss ratio of, believe it or not, 78.4%. This is quite a spike compared to the average loss ratio of 65% between the years of 2016 and 2020.

AB: So, the loss ratio is just the difference between premium paid by the insured and the actual claims cost. Right now, for every dollar that the insurance carrier collects from the insured, about $0.78 is spent on paying for the claims and $0.22 is left for operating expenses and profit. Knowing that inflation is affecting nearly every industry, I’m not surprised we’re seeing the cost of these claims increase like this. Is inflation the only factor that’s having an effect on auto premiums, right now?

JH: While inflation is not the only contributing factor to the challenges within the auto insurance marketplace, medical inflation, supply chain shortages, and labor shortages are also having a significant effect.

AB: Interesting. How is medical inflation affecting auto claim costs?

JH: Well, a continual rise in medical inflation has resulted in the increased cost of treating injured drivers and passengers. Since 2020, healthcare spending has increased by 9.7%.  In the first quarter of 2022, the average bodily injury claim was up 24.2% with medical inflation being a significant factor. Because insurance companies are having to pay more due to medical inflation, obviously consumers are seeing increased premiums.

AB: Ok, I see how an increase in the cost of medical care would certainly increase the overall cost of the auto claims. How are supply chain issues affecting claim costs?

JH: So, in the first quarter of 2022, the average collision claim cost reached a record of $5,743.  This is a 36.5% increase since the first quarter of 2020. Much of this increase can be attributed to supply chain shortages and disruptions. COVID-19 shutdowns caused decreasing demand for good and products. There was also an ice storm in February of 2021 that knocked out factories across the South; there was also a block for six days at the Suez Canal; and there was a semiconductor shortage due to the United States’ reliance on companies overseas. Now that things have opened up post-pandemic, there are still shortages of available parts and supplies, which continues to affect our economy. These supply chain factors have contributed to the average cost of a new car increasing 11.4% and the average used car jumping 7.1%. With the costs of cars increasing and the shortage of available parts, the result is a huge uptick in the cost of repairs and/or replacement of damaged vehicles, as well as of course, the insurance costs.

AB: Alright, so supply chain issues and increases in medical costs are having an effect of the cost of auto claims.  How is the labor shortage impacting these costs?

JH: Well, simply put, the labor shortage has made it difficult to find skilled workers to make vehicle repairs.  While the unemployment rate is back to pre-pandemic rates, many people are still testing the waters as they return to their jobs and, in some cases, taking completely different career paths.  With the increased demand for workers, employers are offering and paying higher wages, which also leads to higher costs for goods and services, which further increases overall insurance costs.

AB: Yeah and, as auto insurance premiums continue to skyrocket as a result of these inflationary factors, now is the time for business owners to really focus on improving their business auto program. Jeremy, if listeners have questions about their commercial auto insurance and risk management, what’s the best way to get in touch with you?

[Outro Music]

JH: Listeners can reach out to me at 619-937-0174 or my email address which is jhoolihan@ranchomesa.com.

AB: Jeremy, thank you for joining me in StudioOne™.

JH: It’s been a pleasure Alyssa, thanks for having me.

AB: This is Alyssa Burley with Rancho Mesa. Thanks for tuning in to our latest episode produced by StudioOne™. For more information, visit us at ranchomesa.com and subscribe to our weekly newsletter.