As you’ve likely heard, across the industry, carriers are seeing elevated automobile loss cost trends. I wanted to give you, 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:
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.
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:
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:
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.
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.