We are hearing from many customers these days about increasing auto policy rates. This is a trend in the industry that isn’t limited to any one company. The following article was written by John Mileski of Safeco, one of our top insurance carriers.
As you’ve likely heard, across the industry, carriers are seeing elevated automobile loss cost trends. Here is some insight into what we’re seeing and share some factors that may impact industry rate trends.
To illustrate, let’s compare the auto insurance industry overall in 2015 with 2006: In 2006, the industry auto loss ratio was 69.7% and the combined ratio was healthy at 95.5%. In 2015, the loss ratio was 80.2% and the combined ratio reached 104.9%. What drove the increase? More cars are on the road. Drivers are more distracted. Cars are more expensive to replace.
Here are a few statistics the entire auto industry is experiencing:
3.148 trillion miles were driven in 2015. That’s a 3.5% increase over 2014 — the largest annual increase in 25 years.[1]
More miles driven equals more cars on the road which leads to a higher probability of accidents, and we’ve seen just that with a higher accident frequency.
Traffic deaths decreased 22% from 2000 through 2014. Estimations for 2015 show a 7.7% increase over 2014.[2]
You read that correctly. After a steady 14-year decline, traffic deaths jumped which matches an increase in accident severity that we’ve seen. Claims are also more costly. For example:
The average cost of bodily injury claims rose 32.1% between 2005 and 2013.[3]
Part of this increased cost is due to increased accident severity. The cost of medical care is also rising, and vehicles are more costly to repair because they include more technology like sensors and backup cameras. A few years ago, there were only a few cars with these safety features on the road, now they’re becoming standard:
The U.S. set a new car sales record of just under 17.5 million vehicles in 2015, up 5.7 percent from the year before.[4]
Newer cars are more expensive to replace because what used to be a minor bumper replacement on an older car now involves replacing those sensors and cameras as well.
With the improving economy and lower gas prices, more people are choosing to drive. Drivers are also more distracted than ever.
The National Safety Council estimates one in four car crashes involves cell phone use.
A recent AAA report shows 87% of drivers engaged in some kind of risky behavior behind the wheel. 70% of drivers admitted they talk on a cell phone while driving and 42% said they read texts or emails while driving.
If you’ve been following the news this year, you’ve noticed a few stories mentioning some of these statistics and tying them to rate. Carriers will likely respond to this growing rate need differently, but based on industry results we do anticipate the industry will need to respond.
Safeco, along with our other carriers, are committed to providing you with a long-term, stable market, and to do that we’ll continue to focus on ensuring our products are profitable. They will be working to address these challenges in ways such as leveraging telematics, sound underwriting, sophisticated pricing models and adjusting rates accordingly.
Sources:
[1] U.S. Department of Transportation’s Federal Highway Administration
[2] National Highway Traffic Safety Administration
[3 Insurance Research Council
[4] Strategy& Price WaterHouse Coopers, 2016 Auto Industry Trends