When the price of oil spikes as it has in recent months (and potentially more after Tropical Storm Don), many start to look at the correlation between these costs and vehicle miles traveled (VMT), and the effect on claims frequency. With the world oil demand expected to continue growing while the supply from countries that are not OPEC members likely slowing, the oil market will tighten further through 2012.
In auto physical damage claims, we need to look beyond this direct impact and focus our attention on some less obvious areas that will be influenced.
For example, since paint and solvents are made in large part from petroleum, these prices will increase. Looking back at the last time oil spiked to current levels, we experienced a four percent increase for 2009 in the hourly reimbursement rates nationally. There was a lag, however, of approximately four months between the time oil hit its highest rate and the rise in paint and materials.
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