Copart reports insurance unit declines in Q3, how AI is being used in claims handling

Copart reported during its earnings call with investors last week that global and U.S. insurance unit volumes declined in Q3, and work continues to expand and extend its commercial relationships with U.S. insurance companies to handle more claims processing for them.

Co-CEO Jeffrey Liaw said Copart’s global insurance unit sales declined 2.7%, or 1.9%, excluding the effect of catastrophic volume from a year ago. U.S. insurance unit volume for the same period declined 4.2%, or just over 3%, excluding the effect of those same catastrophic volumes.

“We believe the long-term growth algorithm for our insurance business remains very much intact,” Liaw said. “Over many years, we’ve observed modest, gradual declines in accident frequency, which are then more than offset by increases in total loss frequency.

“Total loss frequency is, in turn, a function of ever-rising repair costs, but more importantly, the differentiated returns that Copart generates by finding the highest and best use for a car globally, which is often full restoration back to roadworthiness. Nevertheless, the underlying drivers of near-term volume trends remain consistent with those we’ve discussed with you in prior quarters. A portion of this volume variance reflects shifts in policy-in-force mix among insurance carriers.”

He added, as indicated previously, that the trends have historically been cyclical.

“We have observed a moderation in some of these trends among U.S. insurance carriers in recent quarters,” Liaw said. “Claims activity also remains somewhat softer as consumers continue adjusting their insurance purchasing behavior in response to rising premiums.”

He noted that rising repair costs have increased Copart auction returns. Q1 total loss frequency reached 23.6%, an increase of almost 5 full percentage points over the past four years, Liaw said.

“We have helped to drive it upwards, and we view it as our ongoing responsibility to drive ever better auction returns, which then increases the attractiveness of the total loss pathway to insurance carriers who are considering various possibilities for resolving their claims,” Liaw said.

Liaw noted that international buyers are a critical driver of Copart’s auction returns and today represent more than one-third of the volumes sold at U.S. Copart auctions and nearly half of its auction proceeds.

“Today, for U.S. insurance sellers at Copart, the mix of pure sale units is at an all-time high,” he said. “We estimate that our pure sale insurance volume is literally an order of magnitude higher than what is available at other similar platforms.”

Liaw also told investors that claims processing through Copart includes providing AI-enabled tools to make front-end total loss decisions “more quickly and more accurately” through to title procurement, loan settlement, and auction.

During the Q&A portion of the call, an investor asked Liaw whether Copart expects impacts on salvage volumes next year and beyond, in terms of total loss frequency from the decline in new car sales and seasonally adjusted annual rate (SAAR) that began in 2020 during the COVID-19 pandemic.

Liaw responded that for Copart, the catalyst is much less when the cars enter the ecosystem in the first place.

“Whether the car was sold originally in 2018, 2019, 2020, or 2021, is not especially of consequence to us,” he said. “What really matters to us is that the vehicles are on the road, period. There are cars being driven miles — being traversed in the cars themselves — and then, of course, collision rates, total loss rates as well.

“At least in theory, even at the extremes, if you completely eliminated all new cars sold in 2021 altogether, which is not that far from the truth, given what we now know of the semiconductor crisis at the time, that doesn’t have any real pronounced effects given the way our supply is a layer cake of more than a decade’s worth of new car shipments.”

Liaw added that one to three years of disruption, as long as it doesn’t coincide with a dramatic decline in miles driven, would be the independent variable of consequence rather than the new cars.

When asked what insurance partners are saying about the outlook for claims the rest of the year and into 2027, Liaw said they see that claims frequency is down, and that “consumers are swallowing hard,” in some cases by eating minor repairs on their own.

“I think they also recognize these trends tend to be cyclical, not secular, and that eventually folks are rational about the coverage they need and want to pay for; folks who ultimately pay for the insurance they need,” he said.

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