Auto claims severity has been growing, despite frequency dropping

From 2002-2022, physical damage and bodily injury claims grew more than 4.5%, annualized, the Insurance Research Council reports.

Claims severity, which relates to the size of the average claim payment, was restrained from 2002 through the early 2010s, according to the Insurance Research Council. However, claims severity began accelerating in the mid-2010s and skyrocketed during the pandemic as drivers became more reckless and inflation accelerated. Credit: Raychel Lean/ALM

Since the mid-2010s, U.S. auto claims frequency and severity have been on divergent paths. The former has “plummeted” during the past two decades, according to the Insurance Research Council (IRC), while claims severity has been increasing sharply.

The IRC reported long-term claim frequency declines started leveling off in the mid-2000s, with the number of claims per insured vehicle holding steady within a narrow range through 2019. During the pandemic frequency fell dramatically and remained below prepandemic levels in 2022.

Overall, auto claims frequency decline more than 2%, on an annualized basis, from 2002-2022, according to the IRC, which noted safety innovation propelled the decline.

Claims severity, which relates to the size of the average claim payment, was restrained in the first half of the period IRC studied. However, claims severity began accelerating in the mid-2010s and skyrocketed during the pandemic as drivers became more reckless and inflation accelerated.

“During the first half of the study period, the combination of declining frequency and increasing severity left average loss costs relatively unchanged,” Dale Porfilio, FCAS, MAAA, president, IRC, said in a release.

However, he said that as claims frequency plateaued and severity grew, the average payment per insured vehicle, or average loss cost, increased for most coverages. While average loss costs dipped during 2020, they have returned and now surpassed 2019 levels for nearly every coverage.

From 2002-2022, physical damage and bodily injury claims grew more than 4.5%, annualized, while the average payment per insured vehicle increased more than 2.25% for physical damage and bodily injury claims during the period.

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