“Mean Shifting”: The Hidden Cause of Increased Repair Costs?

The collision industry has seen a sudden trend in increasing average paid repair severity and total loss rates. Historically, the insurance community has attributed this to a shift in vehicle mix, or a rise in average collision speed.

During the pandemic, commuting was drastically reduced, meaning fewer cars on the road, often driven at significantly higher speeds. This was thought to be the main factor affecting rising repair costs, offset by a lower frequency of collision. So, when traffic commuting returned to more pre-pandemic levels, insurers were in a panic as repair costs and total losses continued to rise.

One technology that had previously been overlooked as a possible culprit was Advanced Driver-Assistance Systems or ADAS. The Society of Automotive Engineers have categorized the levels of ADAS systems: from the most basic, an audible or warning light system, to fully automated driving. A major part of ADAS is Autonomous Emergency Braking or AEB. Forward and backing collision avoidance systems with AEB do a remarkable job of avoiding collisions by self-braking without driver input. This eliminates a significant number of lower-speed backing-up or stop-and-go collisions, which is ostensibly a very good thing.

However, an unintended consequence of this is “mean shifting” wherein the mean or average cost of repair, increases substantially when the lower-cost repairable collisions (under $2500 for example) are eliminated from a significant number of vehicles. In a normal bell curve distribution of collision repair costs from $1 to $10,000, if a large portion of those lower costs are eliminated, the mean moves – or shifts – to a higher amount. It’s just math.

But shouldn’t the reduced frequency offset that, and in general lead to lower overall costs for an insurer? One would think so. But, so far, because of the concurrent rise in overall total losses, any gains in reduced repair frequency have been more than offset by increased total loss frequency and settlement values.

Wondering what the future might look like? As new car transaction averages fall, as they have since last year, used-car values also have fallen below historical highs. That puts more vehicles in the repair column and should reduce the overall

increased severity trends, but will it be enough to reduce overall insurance claims costs? For once, repairers, insurers and consumers would all benefit if it did.