Friday, February 11th, 2022 — Great 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.
