February 20, 2018 by Jason Contant
Vehicles with special materials such as high-strength steels, aluminum and carbon fibres are now contributing to an increase in severity potential and repair costs, but these costs may eventually decrease, Mitchell International said on Thursday.
Preliminary data is showing the special materials used in the construction of vehicles is definitely increasing the severity of an insurer’s claims costs – “a pretty good increase,” Hans Littooy, vice president of consulting and professional services with Mitchell Auto Physical Damage, told Canadian Underwriter in an interview.
“However, I would caution that as these materials become more mainstream, the industry is expecting the repair costs to decrease, especially panel replacement costs,” he said. “Structural components could remain more expensive as they can be more complicated to replace – but this is more so due to the design than just material costs.”
In Mitchell’s Industry Trends Report: Growth in Special Materials and Its Impact on Estimating, released in the first quarter of 2017, Littooy noted that within the past five years, estimates written for vehicles with special materials have grown from just over 3% to 19%.
Littooy explained that the primary purposes for special materials are safety and fuel economy. Safety requires more materials and a stronger body, while fuel economy requires lighter vehicles. “So the compromise is to use special materials, substrates, that are both lighter and stronger than conventional steel,” he said.
However, welding, fabrication, stamping and the availability of these materials increases repair and material costs, often requiring special training and shop facilities. For example, raw un-oxidized aluminum dust may be combustible under the right conditions, so a special clean room may be required for fabrication and panel preparation.
Littooy predicts that there will almost certainly be a continued expansion of special materials in vehicles in the future. For appraisers, they need to be aware of these materials to ensure proper repair techniques are followed and the appropriate labour rates for those repairs. For carriers, because of the increase in severity potential for vehicles using special materials, they need to ensure policies are properly priced and claims department’s budgets reflect the increased exposure to vehicles with special materials.