Used Car Prices Causing Turmoil For Insurers
Friday, February 11th, 2022 AutoGreat opportunities often arise in times of great change, and that is certainly the case for the auto insurance market.
Used cars are suddenly worth more instead of less - an inversion of the normal depreciation curve is imploding claim reserves at both primary carriers and reinsurers.
The price index for used cars has climbed recently at about 70% above the run rate for the last 10 years. The result is that, for claims in progress, there’s a significantly higher payout for fixing and replacing cars.
In just the last six quarters, the normal and expected phenomenon of a car getting cheaper as it gets older has been flipped on its head. Data from J. D. Power tracks used car prices in a value index for the fleet on the street under eight years old.
Consumers typically secure full insurance coverage for such cars, which are also the kind still under a loan or just recently paid off. We have not seen this extreme price inversion in this century, so actuarial and predictive analytics models have not been trained for this event.
