Labor costs have become a major factor in auto repair costs for insurers, along with the ever-increasing complexity of parts and vehicles, according to a 2024 trends report from Enlyte and its subsidiary Mitchell, which provides claims software and technology.
Insurers expect average repairable claim costs in Canada to be $5,044 in the first half of 2023, an increase of 12% over the previous year.
That amount could potentially rise to $5,500 by 2024, says Ryan Mandel, Mitchell’s director of claims performance.
One of the reasons for these rising costs, according to Enlyte, is a dramatic increase in labor costs.
In Canada, the average cost of auto body work has increased from $72 Canadian to $75 Canadian per hour over the last year, a 4% change in Canada. In the U.S., the increase is even higher at 7.2% (from $55 to $59 last year).
“Traditionally, labor costs have been rising slowly – much slower than the 7.5% growth we saw in early 2023,” Mandel said of the U.S. data. “I expect this to be the case for all operations going forward, including framing and finishing.”
“When you combine these additional labor costs with inflation, (advanced driver assistance systems) and the introduction of lightweight materials in vehicle construction has created a significant challenge for insurers in underwriting,” he continued.
In this sense, ADAS, which are becoming more commonplace, will continue to drive up the overall cost of vehicle repairs.
This should come as no surprise, as the sensor technologies radar, ultrasound, LIDAR (Light Detection and Ranging) and camera need to be thoroughly calibrated over and over again. These sensors do everything from detecting driver fatigue to avoiding pedestrians. And that can be expensive.
In Canada, the calibration frequency for repairable vehicles is 10%. In the US, it is 17% – and this figure is expected to more than double (40%) by the end of the year.
“Performing the calibration adds time and cost to the repair, especially if the body shop does not have the tools or expertise to do the work on-site and must instead outsource the work to a subcontractor,” says Mandel.
Not to mention, electric vehicle (EV) adoption is increasing in Canada, which “contributes somewhat to the faster growth rate” in repair costs, as repair costs for EVs are higher.
The good news is that insurers in most provinces can expect slight reductions in liability insurance for accident-related rental cars in Canada.
According to the latest data from Enterprise, rental duration nationwide in the second quarter of 2024 will be 15.5 days, a decrease of 1.3 days from the previous year.
The rental period alone does not reduce costs. Nor does it offset other system-related costs, says Enterprise.
The LOR results for the second quarter of 2024 are significantly lower, but are still at a fairly high level compared to the 2021 results.
“As the complexity of vehicle repairs continues to increase for both internal combustion engine (ICE) and battery electric vehicle (BEV) models, the entire industry must do its part to ensure that all collision-related companies are on the same page – not only in terms of procedural solutions, but also to ensure that our mutual customers receive safe and proper repairs, an excellent experience and peace of mind,” Enterprise writes.
Cover image from iStock.com/gopixa
