U.S. auto insurers remain wary, even as UAW strike ends

U.S. auto insurers will be closely watching the fallout from the unprecedented, coordinated strike by the United Auto Workers (UAW) union against Detroit's big-three automakers, even after it ended on Monday. The automakers' consent to record-high pay increases and other terms to end the prolonged work-stoppage is expected to push insurers' claims costs beyond their currently elevated levels. 

Reports of a tentative deal between UAW and General Motors on Monday effectively ended the six-week-long standoff with the labor union, with the agreement following similar concessions by Ford and Stellantis, formerly known as Fiat Chrysler. 

Resuming production will benefit the auto insurance industry, which has been reeling from higher loss-costs as claim frequency and severity climbed post-pandemic. Supply chain disruptions, litigation, inflation, and more reckless driving have pressured repair, replacement, and overall claim costs.

Insurers will, however, remain wary of the new labor agreements and automakers' potential efforts to transfer the cost of their 25% salary increase. 

Other terms of the deal, including the billions of dollars in investment committed by the automakers, guaranteed high wages in EV-battery production jobs, and the reopening of shuttered, less-profitable facilities are also likely to raise automakers' near-term costs significantly.

"The industry will be monitoring the strike and its implications for short- and long-term consequences, such as supply chain interruptions for parts, higher labor costs which could have an impact on prices," Robert Passmore, vice president of personal lines at the American Property Casualty Insurance Association, said.

The UAW's win is also being observed by non-unionized automakers, such as Honda, Toyota, Hyundai, Kia, and others for an industry-wide increase in costs.

Supply chain pressure on repair cost

Insurers will also be watching as automakers restart their operations to meet year-end production targets. Industry experts largely expect automakers to reach their production targets, but a crucial variable remains suppliers' ability to rapidly reinstate their workforce and honor delivery timelines after the union strike forced thousands of layoffs. 

The UAW strike has threatened to reignite the supply-chain disruption cycle seen during the pandemic, Josh Damico, vice president of insurance operations at insurance shopping platform Jerry, said. 

Sudden stops in the production line can create a domino-effect that pushes the already fragile supply chain further into disarray, resulting in higher sticker prices, Todd Greenbaum, president and CEO of insurance billing firm Input 1, said.

This article originally published on Thomson Reuters on November 1, 2023. Check out the full article there!