Why insurers auto repair costs are still going up

Labour rates have become a main driver in auto repair expenses for insurers. That’s atop the still-increasing parts and vehicle complexity, finds a 2024 trend report by Enlyte and its subsidiary claims software and tech company, Mitchell.  

Insurers are looking at an average repairable claims cost in Canada of $5,044 in the first half of 2023 — a 12% increase since the previous year.  

This could potentially increase to $5,500 by 2024, says Ryan Mandel, Mitchell’s director of claims performance. 

A dramatic increase in labour rates is one among the reasons for these rising costs, Enlyte finds. 

In Canada, the national average cost for body work jumped from Cdn$72 to Cdn$75 an hour over the past year. That’s a change of 4% in Canada. Steeper still in the U.S., at a 7.2% increase (US$55 to US$59 in the past year).  

“Traditionally, labour rates increase slowly — much more slowly than the 7.5% growth we experienced in early 2023,” Mandel said of the U.S. data. “I expect that will be the case in the future for all labour operations, including frame and refinish.  

“Combining this additional labour cost with inflation, ADAS [advanced driver-assistance systems] and the introduction of lightweight materials used in vehicle construction has created a significant underwriting challenge for insurance carriers,” he continued.  

On that note, ADAS, which are increasingly commonplace, will continue driving up the overall costs of vehicle repairs.  

This should be a surprise to no one, as the radar, ultrasonic, LIDAR (light detection and ranging) and camera sensor technologies need thorough calibration and recalibration. These sensors do everything from detecting driver drowsiness to avoiding pedestrians. And that can be expensive.  

In Canada, calibration frequency for repairable vehicles is 10%. In the U.S., it’s 17% — and that’s expected to more than double (40%) by the end of the year. 

“Performing the calibration adds time and expense to the repair, especially when the collision facility does not have the tools or expertise to complete the work onsite and must, instead, sublet the work,” Mandel says.  

Not to mention, electric vehicle (EV) adoption in Canada is growing, which is “contributing somewhat to the faster growth rate” in repair costs, given that EVs have higher repair expenses. 

The good news is insurers can expect slight decreases in most provinces for the length of collision-related rental cars in Canada. 

Nationally, length of rental (LOR) sits at 15.5 days in 2024’s second quarter, finds the latest data by Enterprise. This is a 1.3 day decrease from the year previous.  

The length of rental alone doesn’t bring costs down. Nor does it negate other systemic costs, Enterprise says.  

LOR results for the second quarter of 2024 are significantly lower, but are still quite high, when compared with 2021’s results. 

“With the complexity of vehicle repairs only increasing, for both internal combustion engine (ICE) and battery electric vehicles (BEV) models, the entire industry must play a part in ensuring all collision-related businesses are aligned — not just for procedural solutions, but to ensure our mutual customers receive safe and proper repairs, an excellent experience and peace of mind,” Enterprise writes.  

 

Feature image by iStock.com/gopixa