Complex cars made from hard-to-fix materials are part of the reason insurance costs are rising

Some of the car insurance inflation in the US can be explained by a pause in premium increases during the pandemic and the widespread parts shortages that hobbled the entire car industry. But much of the cost pressure for insurers is because vehicles have taken a high-tech turn. The phalanx of safety equipment now common on cars includes automatic emergency braking, backup cameras, blind-spot detection and lane-departure warnings, to name a few. To give drivers eyes in the back of their head, automotive engineers have embedded radar, sonar and cameras from bumper to bumper. These advancements mean that even a fender bender can result in an elaborate and costly repair.

Take the Toyota Camry, for decades the bestselling car in America. When Toyota redesigned and upgraded it back in 2018, its front bumper went from having 18 parts to 43, including sensors for the advanced driver-assist system. As a result, it now costs 43 per cent more to repair a Camry after a front-end collision, according to Mitchell, a researcher that provides data and software to insurance companies and car repair shops.

LED headlights found on most new cars cost five times more than the halogen lights they replaced. Automakers also have taken to using more aluminium on car bonnets and other body panels, which improves fuel economy and protects passengers by absorbing energy in an accident. But aluminium tends to crack in a crash, rather than crumple like steel, which is easier and cheaper to repair by bending it back into shape.

“When you have a cracked panel, you’re far more likely to replace it than repair it,” says Ryan Mandell, director of performance consulting at Mitchell. “Lightweight materials improve fuel economy and crashworthiness, but they reduce repairability.”

All the new technology has also added a costly step to the repair process: calibration. Once the broken car has been put back together, all those freshly replaced sensors and cameras must undergo a battery of highly specific, time-consuming tests to make sure all are working in harmony to detect crash risks. This process adds about $US500 to an average repair bill, Mandell says.

Electric vehicles, despite having fewer parts than those with traditional internal combustion engines, take more than 20 days to repair on average, 40 per cent longer than non-EVs, according to CCC Intelligent Solutions. The risk of fire spurs many manufacturers to require that an EV’s massive lithium-ion battery be drained and disconnected before a repair. If welding or a trip through a hot paint bay is required, then the battery has to be removed entirely.

Clymer, the body shop owner, says he knows of a repair technician who was electrocuted while working on an EV last year. “There are a massive amount of safety protocols just to keep our people safe,” he says. “That adds cost.”

When Hertz announced in January that it plans to sell a third of its battery-powered rental fleet and reinvest in petrol-powered cars, EV repair costs were among the reasons it cited for the change of heart. Chief executive Stephen Scherr has said EVs cost Hertz twice as much to repair as internal combustion engine cars, and that weighed on the company’s profit and cash flow. EVs’ impact on insurance rates will only grow as sales rise for battery-powered models, which last year accounted for only 7.6 per cent of US auto sales.

Another culprit responsible for the rise in insurance rates: distracted drivers. Despite all the costly new sensors that detect and help avoid crashes, accident claims are actually up since 2019, Mandell says. This troubling trend is likely to keep premiums rising.

“The way we engage with our vehicle has changed,” he says. “You have this big screen in the dash that’s distracting you, and it’s right next to you in the cockpit. That’s a big reason why we haven’t seen a claim frequency decline.” —With Reade Pickert

Bloomberg Businessweek