For those of us who specialize in trend analysis, the first half of 2022 has yet again kept us on our toes. We have observed recent developments create or exacerbate headwinds for our clients and business partners in the property casualty and auto collision industries, including but not limited to historic inflation of auto repair/replacement costs, supply chain disruption, labor shortages, and increasing weather-related losses.On the casualty side of the coin, the midyear 2022 storyline is not as comparatively grim, although there are some notable developments to monitor in the interest of awareness and proactivity. Auto impact severity indicators, while decreasing as of late, remain elevated above the pre-pandemic 2019 baseline with redistributed traffic patterns/timing and persisting unsafe driving habits. Auto physical damage and 3^rd party casualty claim frequency have recovered close to the 2019 baseline, while 1^st party casualty frequency has remained virtually flat since 2021.Medical treatment severity increases have thus far trailed historic increases to overall U.S. Consumer Price Index (CPI) inflation although they are slowly ramping up. Cost increases that have been observed have so far been offset by decreases in cycle time and complexity of treatment at the patient level. Treatment costs have shifted to increased Radiology, Evaluation & Management, Physical Therapy/Chiropractic, and Inpatient procedures. Medical diagnoses of head injuries have increased in tandem with persistent elevated impact severity.Finally, social factors including increased fatality rates, litigation backlog, third-party litigation funding, and insurer staff shortages have the potential to compound pricing and reserving challenges for insurers over the next few years. Let's take a deeper dive on each of these trends in more detail.Auto Impact SeverityThe post-COVID landscape has ushered in a "new normal" in terms of vehicle type distribution, traffic patterns, and driving habits. Commercial trucking and local commercial traffic were less curtailed by shutdowns than personal auto traffic (Figure 1), along with rapid expansion of E-commerce. Congestion which typically peaked at traditional morning and evening rush hour periods has been redistributed, with much of the U.S. workforce continuing to work fully remote or hybrid model. A larger percentage of commercial vehicles on the road translates to more high liability limit exposures for litigation.

Within our data, we have observed impact severity metrics including airbag deployment percentage (Figure 2) and average Delta-v (Figure 3), which have been elevated since mid-2020, finally start to trend downward into 2022, although they remain above the 2019 baseline. This tracks with increases in the number of medical bills we have received with a primary diagnosis of “head injury” (Figure 4). Persisting unsafe driving habits have also resulted in an increased number of road fatalities (+10.5% in 2021 and +7% in Q1 2022). More serious injuries and fatalities will also likely translate to more litigation. Some would characterize recent adverse trends as offsetting 10-15 years of advances in vehicle safety and collision avoidance technology.

1^st Party CasualtyFirst, let’s review 1^st party claim frequency, which is notable because it has remained roughly 20% below the 2019 baseline since early 2021 (Figure 5). This is likely due to several factors including delay/avoidance of treatment due to public health concerns, growth of direct internet sales, and age demographics (younger injured parties treat less).

Next, let’s look at 1^st party billing severity: The story is similar to frequency in that average dollars billed per line has been relatively unchanged since 2021 (Figure 6).  Medical billing inflation in general is “sticky” i.e., less reactive to external factors compared to gas, food, shelter, labor, etc. which are currently at historic highs. Medical billing severity will likely increase as provider-payer contracts which were set prior to large recent inflation gains are renegotiated.

At the procedural level, the most notable movement in 2022 thus far has been gains in Radiology, Physical Medicine/Chiropractic, and Evaluation & Management procedures as a percentage of dollars billed (Figure 7). Movement is driven by cost increases for procedures such as active physical medicine, high-level evaluation & management, and CT scans (Figure 8). In some cases, such as active & passive physical medicine, we have also observed frequency gains interacting with cost increases.

At the diagnostic level, we have observed aforementioned increases in "head injury" primary diagnosis counts, as well as increases in "soft tissue" counts (Figure 9). The head injury increase is driven by lower-severity traumatic brain injury (TBI) diagnoses (Figure 10). The soft tissue increase is driven by continued year over year increases in nerve and disc injury diagnoses since post-pandemic 2020, in addition to recent gains in generalized sprain/strain diagnoses in 2022 (Figure 11).

3^rd Party CasualtyIn general, 3^rd party trends track with 1^st party with a few key differences due to the nature of 3^rd party liability claims. At the frequency level, we have observed recovery within a few percentage points of the 2019 baseline with a trajectory for continued increase (Figure 12). Treatment complexity and cycle time averages have dipped below the 2019 baseline after post-pandemic spikes, likely due in part to delay/avoidance of treatment facilities due to public health concerns (Figures 13 and 14).

Bill line level treatment severity has been increasing at a rate of roughly 5% compared to the first half of 2021 with 3^rd party auto pricing less driven by payer-payee contracts (Figure 15). 3^rd party severity per injured party has decreased slightly in 2022 despite line-level severity increases due to the offset of decreased treatment complexity (Figure 16).  At the procedural level, Radiology treatments show the largest gains as a percentage of dollars billed in 2022, with minor gains in Physical Therapy/Chiropractic, Evaluation & Management, and Inpatient procedures (Figure 17).  The main drivers are cost increases at the line level with added frequency gains on physical therapy, CT scan, & MRI procedures (Figure 18).

For 3^rd party diagnostic trends, the previously mentioned gains in “head injury” primary diagnoses are driven by level 1 traumatic brain injury increases, which are the most severe (Figure 19).

Finally, the distribution of all 3^rd party injured parties by age has changed slightly with continued year over year gains in ages 31-40 and more recent gains in ages 61-80 (Figure 20). Age demographics can influence severity trends as treatment complexity is notably lower for younger injured parties, with complexity peaking at ages 51-60 (Figure 21).

Social FactorsAt the macro level, recent trends such as historic inflation, staffing shortages, litigation backlog, and persisting unsafe driving habits have emerged to interact with existing trends, including third party litigation funding (TPLF), changing jury demographics, tort reform rollbacks, and public mistrust of corporations.  All the above create significant challenges to the insurer in applying policy pricing and loss reserving.It’s worth circling back on third party litigation funding (TPLF) i.e., the practice of third parties funding litigation in exchange for a share of awards for a few reasons:  TPLF did not originate in the U.S., but it has quickly become main stage. Swiss Re estimates that roughly half of the $17B global investment in TPLF in 2020 occurred in the U.S., and furthermore estimate investment to nearly double to $30B by 2028. One of the biggest reasons for such rapid growth in the U.S. is that the regulatory environment has struggled to keep pace via requirements for transparency and disclosures. Although notable progress has been made in some venues, it continues to trail industry growth.Lastly, it is difficult to quantify and/or predict the long and short-term impacts of current runaway inflation, and its subsequent effects on consumer spending, societal perceptions, overall public sentiment, and attitudes toward corporations. Overall inflation as measured by the Consumer Price Index hit a 40-year high of 7% at the close of 2021, and only climbed further in 2022 reaching a high-water mark of 9.1% in June. Even the most optimistic forecasts don’t predict a slowdown to a more typical 2-3% until well into 2023. This will be achieved in part by federal interest rate hikes adding yet another cost pressure for the large subset of the population in the market to secure a mortgage, auto, or other personal loan.In ConclusionAs we continue to successfully navigate the uncertainties of a "new normal," CCC remains committed to frequent, proactive communication of key trends. For a deeper dive on trends, reach out to your CCC account team, or visit our website at cccis.com.--Video TranscriptThis month, our Casualty Trends report is focused on Casualty developments, including key auto impact severity and medical billing trends from the first half of 2022.First, let's talk about auto impact severity:  Although claim frequency and miles driven have largely recovered from pandemic disruption, the landscape on the roadways has changed.  One notable change is the persistence of unsafe driving habits that developed during lockdown when there were fewer cars on the road. This has resulted in an elevated percentage of airbag deployments (Figure 1) and higher average Delta-v scores (Figure 2), which are used to measure collision impact energy. The good news is that both metrics are trending down this year, although they remain above the 2019 baseline.Persistent unsafe driving behaviors are also observed in medical diagnostic trends, where we are seeing continued year over year increases in post-collision diagnoses of head injuries and fractures (Figure 3). Accidents in years past that resulted in headaches or minor bruises are potentially resulting in a concussion or more serious injury due to increased collision energy.Next, let's look at medical billing severity and treatment trends. The uptick in casualty claim frequency has lagged auto claim frequency recovery (Figure 4), which suggests that drivers are either avoiding or delaying medical treatment due to ongoing COVID-related concerns. This is also evidenced by 3^rd party trends where the average treatment cycle time (Figure 5) and average number of procedures (Figure 6) have both dipped below the 2019 baseline.Medical billing severity at the line level has increased slowly compared to overall U.S. inflation, which has become especially visible due to recent historic highs. We're seeing steeper price increases for 3^rd party procedures than for 1^st party procedures (Figure 7).  Some treatment categories are showing larger severity gains than others, most notably Radiology, Evaluation & Management, and Therapy procedures (Figure 8).