Insurers deem repairs to be too expensive
Safety features such as lane-departure warning systems and multiple airbags prevent deaths and injuries from vehicle crashes. But they’re also driving up the number of vehicles deemed to be total losses following accidents.
That’s the assessment of Bob Tschippert, senior vice president of underwriter Risk Theory, of Dallas, who said expensive technologies have made vehicle repairs more costly, thus raising the chances of a damaged vehicle being declared a total loss by an insurance company.
“In the past, if you had a front-end collision, you had damage to the engine or the front end,” Tschippert said. “But now, with the number of airbags that can run from $1,000 up to $4,000 and all the sensors up front, you’re seeing more totals.”
Replacing airbags is a task further complicated by the massive Takata recall. The backlog of vehicles needing replacement airbags could make it more likely for an insurance company to declare a crash-damaged vehicle with Takata airbags totaled in an effort to speed along the recall process.
In addition, accidents are on the rise as Americans drive more, Tschippert said. Bret Jordan, an analyst with Jefferies, said in a May note that miles driven on a trailing 12-months basis rose 2.4 percent to a record 3.22 trillion in February, according to Federal Highway Administration data.
Salvage auctions are taking notice. In March, Insurance Auto Auctions Inc., a subsidiary of ADESA-parent KAR Auction Services Inc., said it would be expanding some of its largest auctions in seven states. Insurance Auto Auctions specializes in damaged vehicles and jalopies donated to charities, which are sold for their remaining good parts and scrap metal.
Tschippert said natural disasters that severely damage large volumes of inventory, such as the tornado last week in Canton, Texas, that wiped out a dealership, are historically a large driver of salvage supply.
But in fact, the number of claims following natural disasters such as tornadoes, hurricanes and earthquakes has been relatively low over the past several years, he said.
“One of the major areas of catastrophic exposure has always been hurricanes,” Tschippert said. “I’m going to knock on wood, but there’s actually been a very low frequency of hurricanes over, almost, the past 10 years.”
One exception to that trend: Hail storms. Tschippert said claims resulting from hail damage have risen in recent years throughout the heart of the country, from Texas through Minnesota.
In Texas, large hail damaged 110,000 vehicles in the Dallas and San Antonio areas, resulting in $560 million in damage in the first quarter of 2016, the Insurance Council of Texas said.
Hail has gotten so bad for some dealers, including dealership group Sonic Automotive Inc., that hoping not to get hit isn’t good enough any more. Sonic, for instance, said it would put up hail nets at certain stores. The company lost $2.4 million because of storm damage in the first quarter.
“It’s amazing,” said Jeff Dyke, Sonic executive vice president of operations, on an earnings call. “We’re getting ready to put up hail nets in the hail prone areas. We’ve just had enough of it. We’ve been getting killed on it.”