The global automotive claims landscape is currently facing a range of significant challenges — the impact of electric vehicles (EVs), talent shortages among commercial drivers and repair technicians, product recalls and in-market remediations, and increased litigation and legal system abuse, to name a few. Here, we explore some of today’s critical pain points in the U.S. and Europe auto and motor claims markets and what can be done to alleviate them.
The U.S. market
Despite a short-lived reprieve during the pandemic when the commercial auto combined loss ratio fell below 100%, the industry saw 10 straight years of underwriting losses prior to 2021. Claim incidence and costs are rising once again. Still, there’s a lot more the U.S. auto claims industry needs to tackle.
In what would’ve been exceptionally rare only a few years ago, we have entered the era of thermonuclear verdicts, where seemingly routine injury cases result in multimillion-dollar verdicts and settlements. Personal injury firms are using a variety of sophisticated tactics in their pursuit of the trucking industry, the long-favorite target of the plaintiffs’ bar.
As a result, settlements and verdicts above $1 million have shot up drastically, and those of $10 million or more have become much more frequent. Reaching for higher settlement amounts can arguably be explained in part by social inflation, where some jurors are determined to take aim at what they see only as a faceless corporation with deep pockets.
An experienced driver shortage is not helping. Despite efforts to improve recruitment, there is a tremendous need for qualified drivers — lagging far behind demand. The shortage, which can be attributed to the continued growth of online shopping and experienced drivers retiring, among other factors, has left motor carriers with little choice other than to place marginally acceptable drivers behind the wheel, adding fuel to the legal fire.
Additionally, the auto industry has been pushing for tort reform among multiple practices, including third party litigation funding (TPLF), a type of tort that encourages plaintiffs to file frivolous suits and leads to inflated medical costs, settlements and trial demands. One conservative estimate puts the price tag for TPLF at $5 billion. While it emboldens plaintiffs to seek medically unnecessary treatments and procedures, the price of these medical services in many auto-related claims is not reflective of reasonable and customary costs.
The market in Europe
Much of the unprecedented pressure facing the European motor claims market is intrinsic to the rising popularity of electric vehicles (EVs). Although Europe has succeeded more than the U.S. in building the infrastructure needed to support EV usage and promote its environmentally-friendly benefits, there are drawbacks: EVs are estimated to increase accident risks by 25%.
Evolving vehicle technology, combined with supply chain issues and labor shortages, have driven up repair costs, too. “Figures from the Office for National Statistics show the cost of running and maintaining personal transport, including cars, has increased by 15% compared with a year ago, above the overall inflation rate of 10.1%,” The Guardian said in late 2022. Some UK customers report repair costs have jumped by as much as 90%.
Europe has recorded an increase in traffic and accidents. The pandemic significantly curbed the use of public transportation as people grew accustomed to traveling via private automobile, and many opted to drive to travel destinations rather than fly this past summer, fueling the increase.
Additionally, European countries are seeing an increase in other motorized vehicles, such as electric scooters, on roadways. Rising figures for accidents, as well as more frequent small motor claims — such as those related to parking incidents and other minor accidents — have followed suit. Some countries are adapting in kind. For example, in Norway, as of Jan. 1, 2023, drivers of all privately owned vehicles, including e-scooters that can be shared via an app, must have liability insurance.
Finally, as expected during periods of economic pressure, there has been a surge in global insurance fraud over the past few years, including many areas seeing more claims filed with reports of escalated and pre-existing damages. The “exploitation of actual loss” accounted for 27.2% of all motor vehicle fraud cases in Norway in 2020, with similar rates expected for 2023. Beyond individual claims, the BBC reported that, over a two-year period, up to 170,000 claims were linked to suspected “crash for cash” networks.
The value of specialization and experienced partners
Despite the complicated range of issues facing the industry, tackling global pain points is not only feasible — it’s happening. Many service providers (including Sedgwick) are turning to automated solutions to handle small claims, like parking accidents or damage to glass. Additionally, our motor team in Norway is finding that streamlined and highly tailored services are keeping claim costs down and minimizing opportunities for fraud.
To meet the demands of today’s complex business challenges, the industry is moving away from a multi-line adjustment model and demanding greater specialization in high-frequency and costly, complex claims. This strategy — in addition to specialization between first- and third-party exposures (for example, liability, physical damage and cargo) — is vital to effective auto and motor claims handling.
Automotive manufacturers, transportation companies and insurance carriers should seek out partners with strong commercial auto and transportation practice groups, and a deep understanding of the essential challenges facing the industry today. Depending on their needs, specializations like major case units, brand protection, multinational expertise and mono-line focus areas may also be essential.
Learn more > Read more from industry-leading experts in issue 22 of edge, Sedgwick’s digital magazine.