Opinion: Increasing numbers of vehicle write-offs inauspicious for the industry

By Gideon Scanlon

Toronto, Ontario — January 31, 2020 — Repair costs are rising. Insurers are writing-off more and more valuable vehicles, just as the salvage market heats up.

For auto repairers, this is a perfect storm.

 

Repair costs are rising.

According to the Insurance Bureau of Canada, private auto insurers saw a 12.5 percent jump in the amount paid out for auto insurance claims in 2018, over the previous year—going from $15,226,000 in 2017 to $17,382,000 in 2018. Data from 2019 is unavailable.

While it is true that the overall profits of the sector actually increased as a result of increased premium profits, insurers are not known for their willingness to increase costs in response to increased profits.

 

More expensive vehicles are being written as total losses.

The average age of total vehicles written-off by auto insurers is decreasing, and the average value of written-off vehicles is rising.

Data from Mitchell International—drawn from North America— shows a 6.5 percent increase in the number of total losses in the first six months of 2019 as in the first six months of 2018—from 17.49 percent of claims, to 17.53 percent.

Mitchell International also found a 12 percent increase in the percentage of vehicles written-off in their first three years on the road. The number of young-vehicle write-offs rose from 7.9 percent of all claims to 8.01 percent. The same effect can be seen in the luxury market, which saw an 8.5 percent increase in the compared periods.

In luxury vehicles, there was a 10 percent increase of total losses in the vehicle market in the same period—with losses going from 9.7 percent to 9.79 percent.

Despite the increase in vehicles marked as total losses, the market for total loss vehicles is heating up.

Since the beginning of 2018, North America’s largest salvage auctioneer, Copart, has seen its value more than double. Its competitor  Adesa has seen its value rise by 26.5 percent.

This increase has been fueled by a thriving auto dismantling sector, which, in the U.S. saw total sales of $25 billion in 2018, and $32 billion in 2020.

 

Is this a crisis or an opportunity?

Should the frequency of vehicle write-offs continue to increase, not all repairers will lose out. Those able to make more extensive repairs at lower prices will be the first to reap rewards. They will be able to make a profit where other facilities could not, and carve themselves a non-competitive niche.

Those repairers hoping that OEM repair procedures may, on their own, offer some form of salvation from the stinginess of auto insurers, should take a second look at these statistics.

There is a fixed maximum price auto repairers will pay out—on each car, and in every case. If a repair procedure crosses that, auto insurers will write the vehicle off—however well the case for following those procedures is made.

It is easy to forget, but every time a write-off is declared, an OEM wins a sale.

The auto insurer comes out ahead, not having to deal with the cost of the vehicle.

Only the repair facility loses.

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