Category Archives: Auto Insurance

Actuarial science vs. Neuroscience

I get interviewed by a lot of newspapers, magazines and TV stations, but maybe the most interesting one came last year when I spoke to David Scharfenberg of the Boston Globe about neuroscience and actuarial science.

David’s article looks at the criminal justice system and suggests that people under the age of 25 should be classified and punished differently from people older than that. Their young-ish minds aren’t fully developed.

He points to scientific studies and programs, but he wanted to talk to me about insurance. The I.I.I., of course, has no opinion on criminal justice, but famously, auto insurers charge younger drivers more than older drivers, and the rates generally change about age 25.

From the article, here is what I said:

The insurance industry’s decades-old imposition of higher rates on young adult drivers is . . . rooted in hard numbers.

The data show a significant decline in the number of accidents for drivers over the age of 25, because they’re more experienced and more mature. And property casualty insurers — more than 2,000 in all — have to retest that proposition year after year, in order to justify the elevated rates to state regulators.

“It’s like, ‘OK, here we are in Arkansas — well, looks like we’re going to be drawing the line at 25, 26 again,’ ” Lynch says. “Now, we’re looking at Massachusetts — oh, there we are again.” The industry, he says, has known for decades what the white coats in the lab are now confirming.

“We were there,” he says, “long before the neuroscientists.”

Postscript: This article was actually published in November, but I only heard about it in mid-January when a prisoner at a correctional center in Massachusetts asked for more information. I sent him this link from our Facts and Statistics page.

Autonomous vehicles at the 2018 Consumer Electronics Show

At the massive Consumer Electronics (CES) show held in Las Vegas from January 8 – 12, self-driving technology took up much of the spotlight, heralding the unstoppable advent of the era of autonomous cars.

The activity went beyond the convention floor, with Aptiv (formerly Delphi) and Lyft partnering to offer rides in self-driving cars to attendees.

The Wall Street Journal reports that Renault-Nissan Chief Executive Carlos Ghosn said at a CES press conference: “[We are] going to see complete arrival and mass marketing of autonomous driving in the next six years. … The speed at which mass marketing will happen will not depend only on us. It will depend on country by country to make this a mass marketing phenomenon, not only a prototype… But this is going to happen.”

At the CES Research Summit, AIG’s Lex Baugh, chief executive officer for North America general insurance, said that the company is figuring out how autonomous vehicle risk might involve auto manufacturers, software providers and parts suppliers, as well as infrastructure and communications providers, reports A.M. Best.

Gaurav D. Garg, CEO of global personal insurance at AIG, said that he expects that jury decisions and awards in litigation related to autonomous vehicles will be a part of shaping the future of the technology.

Zurich Insurance Group, is one company looking to get a jump on auto technology advances. Zurich acquired Bright Box HK Ltd., in a move which the company said would increase its capabilities in connected car technologies and mobility and strengthen Zurich’s proposition for car drivers, car dealers and original equipment manufacturer. The acquisition will also facilitate new insurance services leveraging telematics-enabled data analytics.

More Wildfires, This Time in Southern California

The worst wildfire season in the history of modern California is taking another bad turn, as three major fires have destroyed more than 200 homes and buildings.

Strong winds will be fanning the flames. The state’s foresters have issued a purple wind alert for Southern California, something they have never done before.

This follows a Department of Insurance report that insurers have incurred more than $9 billion in claims so far from the October fires, being $8.4 billion in residential claims, $790 million in commercial property, $96 million in personal and commercial auto, and $110 million from other commercial lines. County-level details here.

The New York Times has a 2-minute video summarizing why this year’s wildfire season has been so bad.

Their take:

  • Wet winter followed by hot summer. The moisture encouraged plant growth. The heat turned those plants to tinder.
  • Longer fire season, perhaps linked to climate change.
  • Growing residential areas. Development is encroaching on forests.
  • Santa Ana winds. As noted above, the winds are blowing harder this year.

I.I.I. Facts + Statistics on wildfire can be found here. Here’s a prior Terms + Conditions post on filing claims. (It was written for the October fires, but the message will not have changed much.)

Flood Vehicles: Avoid Purchasing a Washed-Up Vehicle

One of the many devastations of the floods that accompanied Hurricane Harvey is the destruction of a up to a million vehicles worth as much as $4.9 billion.

The National Insurance Crime Bureau (NICB) has issued a news release warning consumers that vehicles flooded by Hurricane Harvey may soon be appearing for sale around the nation.   By definition, a flood vehicle has been completely or partially submerged in water to the extent that its body, engine, transmission or other mechanical component parts have been damaged. If the vehicle is so damaged that it is no longer operable, the driver’s insurance company settles the claim by buying the vehicle and selling it as a “salvage” at an auto auction.

Dishonest and unscrupulous car dealers buy the vehicles, dry and clean them, yet leave plenty of hidden flood damage. They then transport the vehicles to states unaffected by the storm or natural disaster and sell them as used vehicles to unsuspecting buyers. These dishonest dealers will not disclose the damage on the vehicle’s title as they are required, which is a crime called “title washing.” The vehicles are then sold with the hidden damage. More facts about flooded cars can he found here.

The NICB’s VINCheck is a free public service that allows car buyers to see whether a vehicle has ever been declared as “salvage” or a total loss by an NICB member that participates in the program.

The Week in a Minute, 8/17/17

The I.I.I.’s Michael Barry briefs our membership every week on key insurance related stories. Here are some highlights.

Insurance coverage for riot-caused damage became a media issue this week after a 32-year-old woman was killed, and scores were injured, in Charlottesville amid violent, dueling protests centered on the removal of Confederate General Robert E. Lee’s statue.

Reporters want to know if the number of car accidents might rise on Monday, Aug. 21, when the population soars in 14 U.S. states, from Oregon to South Carolina (see page 4), as tourists flock to witness a total solar eclipse.  It is the first one to be visible in the U.S. in 38 years.

Gert became the second hurricane of 2017 to develop in the Atlantic Basin but it never came near the U.S. before drifting into the middle of the ocean.

Will your baby need to learn to drive?

“They’ll be driving soon,” a friend said recently when I sent him a photo of my two young sons. “Hoping car will do that,” I responded, only half-joking.

But if you think about it, we may not be so far from that scenario and insurers are among those saying sooner, rather than later for self-driving cars.

From across the pond, this:

“Babies born today may never have to take a driving test.”

Axa UK’s chief executive Amanda Blanc told The Telegraph that autonomous vehicles could be on the roads within 15 years.

In preparation Ms. Blanc said it is crucial for the insurance industry to build a framework for what happens in the event of a car accident that is caused by a computer, rather than a human.

“Driverless cars will not be able to take to the roads [without that],” she added.

Insurers know that new technology, particularly the rise of autonomous driving, will drive a big shift in liability claims and they are preparing accordingly.

For example, in our earlier post we reported that Allianz has already started building teams of engineers with experience in automotive and driverless technology.

The Trump administration is set to unveil revised self-driving guidelines within months, according to this Reuters report.

Despite advances in safety, the impact of collision/crash, particularly motor-related, is the main driver of liability loss activity in the United States, according to Allianz’s latest global claims review.

Check out the I.I.I. issues update Self-Driving Cars and Insurance.

Long Road To Better Data On Drowsy, Drunk, Drugged And Distracted Driving

States are underreporting critical data from crash scenes that could make a big difference in efforts to prevent help prevent traffic fatalities and injuries.

A National Safety Council review of motor vehicle crash reports found that:

  • All 50 states lack fields or codes for law enforcement to record the level of driver fatigue at the time of a crash;
  • 26 state reports lack fields to capture texting;
  • 32 states lack fields to record hands-free cell phone use;
  • 32 states lack fields to identify specific types of drug use if drugs are detected, including marijuana.

States are also failing to capture teen driver restrictions (35 states), and the use of advanced driver assistance technologies (50 states) and of infotainment systems (47 states).

Excluding these fields limits the ability to effectively address these problems, NSC said.

“Collecting data from a crash scene may be seen as merely “filling out accident reports” for violation and insurance purposes. Data collection efforts immediately following a crash provide a unique opportunity to help guide prevention strategies. Currently, some states are recording this type of data and others are not. When data of this kind is requested to be reported on a crash report and is entered, prevention professionals will have the data to better understand driver and non-motorist behaviors. When this data is not recorded, prevention professionals are left guessing.”

The call for better data collection follows the release of NSC figures showing that in 2016 there were more than 40,000 traffic fatalities in the U.S. for the first time in 10 years.

A recent I.I.I. white paper found that in the past two years, both the accident rate and the size of insurance claims have climbed dramatically. These are the largest and most volatile components of auto insurance.

Check out additional I.I.I. facts and statistics on highway safety.

An Elementary Mistake

I.I.I. chief actuary James Lynch explains why ProPublica’s analysis on auto insurance is inaccurate, unfair and irresponsible:

It looks like ProPublica failed its first actuarial exam.

The renowned investigative journalism website has, along with Consumer Reports magazine, published reports that auto insurers systematically charge unfairly high rates to people in minority and low-income communities.

It is an explosive charge—to say that in, for example, Illinois, 33 out of 34 companies the journalists looked at (including the nation’s largest insurers) all systematically price-gouged minority communities and areas with predominantly low income households.

And the charge is inaccurate.

Read Lynch’s full Op-Ed in Insurance Journal here.

Insurance And Your Tax Return

Answers to your tax questions in this guest post by Brian O’Connor, a freelance personal finance writer:

Can you ever deduct your homeowners or auto insurance premiums? And could you end up owing tax on an insurance payout?

The general answer is “No,” but like anything that involves taxes, the real answer is “It depends.”

“As a general rule, personal expenses are not deductible under the tax code,” says Mark Luscombe, principal federal tax analyst for Wolters Kluwer Tax & Accounting practice. “If you use part of the home as a home office or rent out part and get rental income, then you can allocate a portion of the insurance cost to that business activity and it’s deductible against your business income.”

The same goes with your auto insurance payments. If you use your car for business or in a side gig, you can deduct some of that cost. The easy way on auto is to just claim the IRS mileage allotment of 54 cents per mile (you can do that with miles driven for charity work, too). That number covers gas, maintenance, insurance and other car expenses.

On your home, you can take $5 per square foot for your home office. That amount is likewise calculated to cover all your costs of home ownership, including insurance.

Or you go the complicated route, add up all your real expenses and then deduct them to the extent that your home or car was used for business. If it was 20 percent of the time, you can write off 20 percent of those costs.

In terms of an insurance payment, it typically won’t be taxable, unless you make a huge profit beyond what you paid for the property that was damaged, stolen or destroyed.  And if an insurance payment fails to cover your total loss? It’s a stretch but you take a big enough hit, you might have a deduction.

“You really have to be talking about a pretty big loss before you can write anything off,” explains Barbara Weltman, contributing editor of J.K. Lasser’s Your Income Tax 2017.

More information on tax filing and insurance from the I.I.I. website.