Auto Claim Costs Are Up: Here’s Why (and What to Do About It)

In many market segments, auto claim costs are up. There are a variety of reasons for this, including a lack of experienced drivers for businesses to hire and increased accident rates across the board. But what are the most important factors pushing up the costs of auto claims, and what can you do to save money in this area?

Why Are Auto Claim Costs Up?

First, let’s try to figure out why auto claim costs are up.

There are several possible influential factors to consider here.

•       Increased accident rates. Accident rates have a direct bearing on auto claim costs, for some obvious reasons. If one of your company vehicles is involved in an accident, it’s only natural that your premiums will rise, as your insurance company will view your company as a greater risk. However, greater overall accident rates can also impact your insurance costs, and for two reasons. First, the insurance company interprets more risk, and second, the insurance company is forced to pay more money out, forcing them to raise auto claim costs and premium costs to make up the difference.
•       A lack of experienced drivers. Some construction companies struggle with auto claim costs because they have a lack of experienced drivers, leading to more accidents and lower safety levels. There’s a general labor shortage affecting the market, and that shortage is greater in blue collar environments like construction.
•       General price inflation. We’ve all felt the effects of price inflation over the past few years. As the value of the dollar declines, prices naturally increase. In the United States, the Federal Reserve and the federal government generally attempt to preserve a small amount of inflation at all times in an effort to incentivize economic activity. However, when inflation rates increase, consumers and businesses both feel the pain of increased costs all around.
•       Storms and natural disasters. Auto insurance costs are rising faster than inflation, in part because of increased natural disasters and storms. Over the past several years, we’ve seen far more storms, far more intense storms, and more natural disasters. These destructive events have caused more accidents and property damage, forcing insurance companies to increase prices to compensate.
•       Insurance industry losses. In line with this, the insurance industry has suffered some heavy losses over the past several years. Many of the country’s biggest insurance companies have been operating at a literal loss, spending far more money than they have coming in. Since insurance companies don’t have much flexibility in controlling payouts, they’re practically forced to increase prices – or risk going under.
•       Difficulties with regulations and controls. At the same time, legislative bodies have difficulty imposing regulations or restrictions on insurance companies. If the regulatory environment becomes too hostile, insurance companies may threaten to stop offering policies altogether.

What Your Company Can Do About It

So what can your company do about these rising auto claim costs?

•       Hire carefully. Actively recruit experienced, mature drivers – and always screen those drivers carefully. Make sure you have skilled people committed to safety on your team.
•       Provide thorough safety training to your drivers. Even if you’re hiring someone with significant driving experience, always provide thorough education and safety training to your drivers. Make sure they understand how to prevent and minimize damage in accidents and verify that understanding at regular intervals.
•       Adopt a robust safety culture. A safety culture, within an organization, is an environment and set of values designed to make safety the ultimate priority. If you and the leaders within your organization make it clear that safety is the top value, your employees are far more likely to engage in safe behaviors.
•       Invest in dashcams and telematics. You may also be able to save money by investing in dashcams and telematics. Sometimes, insurance companies are willing to lend you a discount just by having them. You can also use the data from these systems to prove that your drivers operated responsibly if accidents do occur.
•       Understand your policies. Make a concentrated effort to thoroughly understand all your insurance policies. What exactly do these policies cover? What don’t they cover? What are your financial responsibilities in the event of an accident?
•       Monitor and make adjustments. Keep a close eye on your vehicles’ performance, your employees’ behaviors, and your approach to accident prevention. Be prepared to make adjustments as necessary.

You may not be able to reduce your auto claim costs to zero, and there are some things in the auto insurance industry that you can’t control or mitigate. However, with a commitment to greater safety and some proactive strategies to reduce costs here, you can keep your employees safer and keep your organization more profitable at the same time.