Category Archives: Auto Insurance

Auto Results: Ups and Downs

While the spike in auto accident rates appears to have eased in the past year or so, increases in claim size continue to present challenges. The folks at Gen Re weigh in:

Industry loss ratios suggest that many carriers are still playing catch-up. With ultimate liability loss ratios above 70% and combined ratios several points above 100%, the industry still has work to do.

Here at I.I.I. we note that for the first half of the year, liability loss ratios have fallen 3 percentage points for personal auto, to 64 percent, but risen 4 points for commercial auto, to 70 percent.  (This comes from NAIC data sourced from S&P Global Market Intelligence. Q3 data isn’t out yet.)

Physical damage loss ratios have fallen 5 percentage points, to 60 percent. Physdam results don’t get split between commercial and personal auto on financial statements until year-end, but the improvement is probably weighted to the personal auto side, since personal physdam is more than 90 percent of total volume.

So the landscape seems to be improving for personal auto but not so much for commercial . . .

. . . Which explains why the Council of Insurance Agents and Brokers reports that commercial auto rates are 7 percent higher than a year ago. It’s the 29th consecutive quarter (more than seven years) of rate increases.

Gen Re spotlights the following trends, most of which transcend personal and commercial lines:

  • Economic Recovery and Miles Driven – The improvement in the unemployment rate puts more cars and a worse mix of drivers on the road.

  • Driver Shortages – The trucking industry estimates a shortage of over 50,000 drivers by year-end, which leads to reliance on inexperienced drivers entering the industry.

  • Distracted Driving – Cognitive distractions and smartphone addiction have contributed to higher accident severity, with statistics often being underreported.

  • Drugged Driving/Marijuana – Studies from Washington, Colorado and Oregon find that accident frequency increased in the years after marijuana was legalized, and more states have since enacted similar legislation.

  • Escalating Repair Costs – Advances in vehicle safety systems, including cameras and sensors, have grown repair costs significantly.

  • Litigation/Jurisdiction – An active plaintiff’s bar, restrictive medical records laws, cost shifting, and litigation funding can drive up settlement values substantially.

We’ve seen similar trends at I.I.I. and highlighted them in this presentation last March in Chicago. The key graphic from that presentation is atop this article. We add speed to the mix, because as cars get more powerful, people drive faster.

 

Drivers are underprepared for car accidents, new survey finds

Nobody wants to be in a car accident, but they happen to almost all of us. According to a new survey from Esurance, 77 percent of U.S. drivers have been in at least one accident (which aligns well with previous research showing the average driver will be in 3 to 4 accidents in a lifetime).

The survey also found:

Drivers aren’t taking post-accident precautions to ensure their well-being.

  • More than half neglected to file a police report or document the damage.
  • Only 42 percent talked to the police after their incidents.
  • And, of respondents who suffered injuries in an accident, fewer than half (47 percent) sought medical attention.

And drivers are underprepared before an accident even happens.

  • 75 percent of drivers believe they’re well covered by insurance but may have gaps since 3 out of 4 drivers experience some out-of-pocket costs (and 16 percent know they have coverage gaps but choose to take the risk).

Ideally no one should be involved in a collision, but since car accidents are still a fact of life, the I.I.I. has advice on steps to take after an accidents here.

 

What motivates people to shop for auto insurance? A study conducted by Facebook and comScore

To discover what motivates people to shop for auto insurance in the U.S., Facebook and comScore teamed up to survey 1,010 U.S. adults who had purchased a car in the last 6 months. Our guest blogger, Brad Auerbach, provides key insights from the survey, which we think will help insurance producers and marketers target potential customers.

By Brad Auerbach, Head of Industry, Facebook

Mobile devices are facilitating consumer research

Smartphones and other mobile devices clearly play a major role in how customers research their insurance options. Thirty-nine percent of survey respondents reported being heavy mobile users, and 64 percent said that they have previously used a smart phone to shop for auto insurance.

But it appears that most customers aren’t using mobile to buy insurance online. Sixty-one percent of respondents reported that they believed research to be important before selecting their provider, but less than half reported that they actually purchased auto insurance online. Of the respondents who purchased offline, 45 percent said they purchased through an agent and 10 percent through a call center.

Key takeaway: The relative lack of online sales activity may be an indication that auto insurers need to improve their online purchasing experience, such as providing a faster and more streamlined design and experience for their users. Note that survey respondents pointed to a good website (25 percent) and mobile app (15 percent) as potential reasons for why they chose their auto insurance provider.

Consumers don’t shop around for very long

Thirty percent of respondents reported that they selected their provider within a single day, and 60 percent said that their shopping window lasted less than one week.

Advertising is one way that affects which insurance provider consumers choose. Almost half (49 percent) of respondents who recalled seeing or hearing auto insurance ads reported that the ads helped them discover new insurance brands. Forty-four percent agreed that encountering ads motivated them to consider an insurance provider that they hadn’t previously considered.

Key takeaway: Insurance producers and marketers should be prepared for consumers to make quick decisions once they’ve found an auto insurance provider that meets their needs.

The 4 major types of buyers and their motivations

We identified 4 major buyer-types in our survey. They included:

Millennials

33 percent of respondents

Millennials are actively seeking out others’ opinions before buying auto insurance. They’re more likely to be motivated by price. Important triggers for them to begin shopping for insurance include life events, such as buying a new car or moving to a new location.

Loyalists

55 percent of respondents

Loyalists are loyalists for a reason.  They are less likely to do deep research, but instead may place a high emphasis on customer service. Their triggers include contract renewals (51 percent), followed by a new car purchase (34 percent).

Switchers

37 percent of respondents

Switchers are motivated by pricing above all else. They’re receptive to advertising and they’re likely to research multiple channels such as friends and family, insurance company websites, social media, etc., to ensure that they’re getting the best deal.

Heavy mobile users

39 percent of respondents

The heavy mobile user intuitively turns to their mobile platforms to conduct their auto insurance research. As expected, they tend to be younger, with lower incomes and credit scores. Their triggers include a recent car purchase (41 percent) and the desire for lower pricing (39 percent). 44 percent also reported that they’ve switched auto insurance providers in the past.

Conclusion
Auto insurance producers and marketers can improve their sales performance by understanding who their customers are, including their motivations and how they’re using technology to buy auto insurance.

For more insights on the path to purchasing auto insurance, download the full report.

 

Brad Auerbach is the Head of Industry at Facebook, where he is focused on leading the operational excellence, revenue growth and strategic partnerships with the largest U.S. financial services and insurance companies. Brad’s team consults with marketers to empower mobile connections that drive business results. Brad is a regular speaker at the McKinsey Property & Casualty Leaders Forum, TransUnion Digital Disruption Summit and Northwestern University’s Kellogg Marketing Conference. Brad attended Indiana University and lives in Chicago with his wife and their two children.

What will legal marijuana mean for Canada’s road safety?

don’t drive stoned.

As you’ve probably heard, recreational marijuana will be legal across Canada come October 17, 2018. Will stoned driving increase? Will this lead to more accidents and fatalities?

We can’t divine the future, of course.  But perhaps we can learn something from the past. Did roads become more dangerous after states began legalizing recreational pot in the U.S.?

The short answer: probably, to some degree.

  • The more stoned a driver is, the more likely she is to be involved in an accident. Motor and cognitive skills are important for safe driving. Getting stoned makes both these skills worse – and the more stoned a person is, the more these skills deteriorate.
  • The number of “THC-positive” drivers on the road increased after legalization. In Washington state, at least. There’s evidence that the percentage of stoned drivers went up noticeably after the state legalized recreational pot.
  • Fatal crashes involving drivers who tested positive for THC increased. Some studies indicate that more people with “detectible” levels of THC in their bloodstreams were involved in fatal accidents after legalization.
  • Collision claim frequency appears to have increased. Early analysis suggests that states with legal marijuana have higher rates of car collisions than they would have had without legalization.

There is an important caveat to all this. You’d think that figuring out when someone is stoned would be easy. It’s not. Unlike alcohol, measuring marijuana impairment is complicated. THC can remain in a user’s bloodstream for days, even weeks, after getting high. Having THC in her bloodstream at the site of an accident does not automatically mean a driver was stoned at the time of a crash.

To make matters worse, to what degree marijuana impacts one person’s driving skills is also not so clear-cut as you’d think. Marijuana impacts different people differently. Researchers are currently trying to figure out how to account for things like THC tolerance when they measure how much marijuana increases crash risks.

But despite these complications, most evidence suggests that stoned driving is a bad idea – it endangers the driver, passengers, and other drivers. For this reason, Canadian provinces have begun revising their impaired driving laws to come down harder on stoned driving.

So what does this mean for road safety in Canada? It’s still too early to tell, but marijuana legalization in the U.S. should serve as a warning.

Your car got flooded. Will your insurance help?

flooded cars are bad news.

So your car got flooded and two thoughts immediately flash in your head: how am I going to get to work and how am I going to pay for this mess?

I can’t help you with the first question, but the answer to the second is easy: insurance.

Comprehensive auto coverage: If you’re one of the 78 percent of Americans that opted to purchase comprehensive auto coverage, you’re in luck. Standard comprehensive coverage will pay for damages to your car caused by water or flood, subject to a deductible. It’ll even cover you if hail smashes your windows to pieces and rain ruins your leather seats.

If your car is so water-logged that it’s inoperable, then it might be a “total loss” – meaning that paying to fix it is greater than how much your car is worth. If it’s a total loss, your insurance will pay you the actual cash value for the car (that’s the purchase price minus any depreciation since you bought the car) and then salvage it.

Not everything is covered: But comprehensive coverage is not all sunshine and roses. It won’t cover you for any of your electronic equipment in the car that’s not permanently installed (think: your GPS navigation if for some reason you don’t use your smartphone for that – but your smartphone isn’t covered either). Comprehensive is also probably not going to help you out if you left your windows open during a rainstorm, so keep your eye on that weather forecast.

What if I don’t have comprehensive coverage? Unfortunately, if you didn’t opt in for extra coverage, you’re probably out of luck. Basic auto insurance doesn’t cover flood and water damage. Your homeowners and renters policies probably also won’t help: these policies don’t cover damage from floods. If you have a newer or higher-value vehicle, this lack of coverage could be a serious problem.

As FEMA puts it, “anywhere it can rain, it can flood.” The odds are good that you live in a place where your car can get damaged from water or floods. Speak to your insurance agent or carrier about whether comprehensive coverage is the right move for you and your vehicle.

E-scooter sharing programs: are you covered?

Move over, ridesharing, there’s a new urban mobility player in town: dockless electric scooter (e-scooter) sharing programs are growing in popularity in cities across the U.S. They operate like bike-sharing programs, but they introduce some interesting insurance issues.

scooting into the future
Man riding an electric scooter

The concept is pretty simple: you download an app from companies like Lime and Bird that lets you find and unlock an e-scooter nearby for a small fee, often just $1. You can then, well, scoot off wherever you want to go, paying per mile of riding. These rented devices are “dockless,” so once the trip is completed, you can park your e-scooter anywhere that local ordinances permit – they can’t block public paths, for example.

We’re not talking about mopeds or Vespa-like scooters, which allow drivers to sit, can reach relatively high speeds, and often require a driver’s license. These are battery-powered Razor-like scooters, which require a you to stand, often can’t go faster than 15 or 20 mph, and usually don’t require a driver’s license.

You can cause a lot of damage at 15 mph, though – trust me, I’ve seen a person step in front of a fast-moving road bike. It wasn’t pretty.

So if you cause an accident, are you covered? That’s where things get a bit murky.

First off, in most cities, the company renting you the scooter probably won’t cover your liability – that’s part of the multipage user agreement you endorse by clicking the ‘I Agree’ button. You’re basically riding at your own risk. This may change, though, as scooting sharing spreads. San Francisco’s new permitting process, for example, requires these companies to have “adequate insurance” for each of their users.

As for your own insurance, whether you’re covered depends on the specific terms and conditions of your policies. You should speak to your insurer or agent. When they were created, the typical homeowners and personal auto policies didn’t really consider whether they’d cover a motorized scooter you just picked up off the curb. Expert opinion and wording are critical.

Homeowners: Under a standard homeowners policy (for example, the HO-3), motor vehicles are usually understood to be any self-propelled vehicle and aren’t covered. That is what an auto policy is designed to do. It’s pretty much the same for renters insurance.

Personal Auto: The standard personal auto policy excludes liability coverage for a vehicle with fewer than four wheels. The scooters we’re talking about have two wheels.

Personal Liability Umbrella:  Personal liability umbrella policies (PLUP) offer an extra layer of protection that kicks in when you reach the limit of your underlying homeowners or auto policy. They can also give coverage for things that are excluded from your other insurance policies. For example, unlike an auto policy, a standard PLUP does not usually exclude vehicles with fewer than four wheels.

The bottom line is: check with your insurer or agent about your coverages.

Missouri auto study rebuts 2017 ProPublica story

By Michael Barry, Senior Vice President Media Relations and Public Affairs, Insurance Information Institute

 

ProPublica’s investigative story last year on auto insurer pricing in four states—California, Illinois, Missouri, and Texas—will be seen in a different light, at least when it comes to Missouri, following this month’s meeting of the National Association of Insurance Commissioners’ (NAIC) Auto Insurance Working Group in Boston, MA.

To refresh everyone’s memory, ProPublica’s April 2017 report alleged “some major insurers charge minority neighborhoods as much as 30 percent more than other areas with similar accident costs.” The I.I.I. pushed back immediately, calling ProPublica’s assertions “inaccurate, unfair and irresponsible.” Moreover, the I.I.I. sponsored research by a leading actuarial firm, Pinnacle Actuarial Resources, which found “multiple concerns” with the methodology ProPublica employed when arriving at its findings.

The NAIC heard from Missouri’s Angela Nelson on Saturday, Aug. 4.  Ms. Nelson said her state’s Department of Insurance, Financial Institutions, and Professional Registration (DIFP) found “no evidence” Missouri’s private-passenger auto insurers were employing discriminatory pricing practices while also determining in a comprehensive July 2018 assessment of Missouri’s auto insurance market the following trends:

  • When adjusted for inflation, the typical Missouri driver has seen a 17 percent decrease in their auto insurance premiums since 1998.
  • Premium levels for liability coverage are two-times higher in Kansas City and St. Louis than they are in the rest of the state.
  • About 13.7 percent of Missouri’s drivers are operating vehicles while uninsured; this tracks closely to the Insurance Research Council’s estimate of 14 percent.

 

Is relief in sight for personal and commercial auto claims?

By Steven Weisbart, Chief Economist, Insurance Information Institute

 

 

About three years ago the Insurance Information Institute noticed a strong correlation between the number of people employed and the amount of driving done, as measured by the U.S. Department of Transportation’s monthly survey of vehicle-miles traveled. Of course, it is reasonable to expect that as more people hold jobs, most would drive to work. And as those who had been unemployed gained incomes, they would also logically be likely to drive more for leisure.

Further, we noticed another strong correlation between vehicle-miles traveled, on the one hand, and the collision paid claim frequency rate (as captured by Fast Track Monitoring Service), on the other—which is also a logical relationship. This, in addition to other factors, such as an increase in distracted driving, higher speed limits on some roads and other causes, helped explain the unusual spike in the frequency of auto insurance claims in 2015 and again in 2016.

However, lately these relationships appear to be weakening. For example, the year-over-year increase in vehicle-miles traveled was more than 2 percent in 2015 and 2016, and despite continued steady growth in the number of people employed, was 1.5 percent in the first half of 2017, just under 1 percent in the second half of 2017, and under 0.5 percent in the first five months of 2018 (the latest data available).

It’s possible that the rise in the price of gasoline is affecting vehicle-miles traveled. For most of 2016 the retail price of a gallon of gas (all grades) was less than $2.40, but for the first half of 2017 it averaged $2.50 and for the second half of 2017 averaged $2.65. For the first half of 2018 the average was roughly $2.85.

The collision paid claim frequency rate has also flattened, echoing the pattern of vehicle miles traveled. These new patterns suggest that the beleaguered private passenger and commercial auto claims might finally see some relief following a few years of combined ratios well north of 100.

What a driverless future means for auto insurance

The American public is skeptical about giving up control of their cars’ steering wheels. Despite the enthusiasm with which autonomous vehicles (AV) are being developed by auto manufacturers and technology companies, recent polls, including this one, showed that few drivers are interested in giving up control of their cars despite the potential safety and time-saving benefits.

And although there’s a long way to go (about 25 to 30 years) before the AV future takes hold, it’s not too early for auto insurers to think about how self-driving cars will affect them.

Haden Kirkpatrick, Head of Innovation & Strategy at Esurance, likens the advent of driverless cars to the beginning of the era of the horseless carriage in the 1890s. Since the first auto policy was sold in 1898, car insurance has evolved from simple handwritten contracts to the high-tech global industry that it is today.

And just as the transition to “horseless” spurred great changes in the early 20th century, the transition to “driverless” will likely mean big changes once again. This time, instead of creating the need for more personal coverage, the move to AV is set to drive the need for more commercial insurance as car manufacturers will assume much of the risk for this new tech.

Kirkpatrick says that it’s too soon to determine where exactly insurers strategy should go. “Where is the vehicle category going to end up? We don’t know yet, 10 to 25 years is a long way down the road.”

What we do know is that technology companies and auto manufacturers (OEMs) are capturing reams of data all the time, and that data can be used for actuarial models. Insurers also will need to form partnerships with the winners in the AV space.

“Insurers are having conversations (with OEMs) to solve problems and pain points. Data is central – a lot of benefits are to be gained with partnerships.”

Where does AV commercial liability responsibility lie?

The terms liability and responsibility begin to break down when there are multiple parties involved, said Kirkpatrick. “When fault is divided between consumer, manufacturer, [and the] software maker, – in the short term there is a mixed environment.” Managing the “ratio of responsibility” will be one of insurers’ biggest tasks.

So, when does the consumer exit the ratio of responsibility?  “One scenario is when the steering wheel is gone, the consumer’s responsibility could be gone,” said Kirkpatrick.

What about the semi-autonomous cars that are on the road now?

The cost benefit of driver-assist features such as adaptive cruise control is not translating into lower insurance costs. “As frequency declines, severity increases, [because of] higher parts and labor costs.” However, preventing the average fender bender involving adaptive cruise control will provide a good baseline to understand the bigger challenges and will help bridge gap in 10 to 15 years.

 

Auto insurance and inflation

Dean Baker and Matt Harmon, writing for the Center for Economic and Policy Research blog, analyzed various methodologies of measuring price changes in auto insurance: the Consumer Price Index (CPI), the Personal Consumption Expenditure deflator and what they refer to as I.I.I. data (average expenditures published by the NAIC). Their comments appear to be driven by the April 2018 report of the Bureau of Labor Statistics that the price of auto insurance in the CPI rose by 9.0 percent over the price in April 2017.  This observation leads to the claim that auto insurance “has passed medical care as a driver of inflation.”

The blog post takes a number of tangents—on health insurance, on the different methodologies used by the CPI and the PCE deflator—and then turn to the observation that what people actually pay for auto insurance isn’t increasing very much at all. They infer that because the cost of auto insurance is rising in the CPI, and at the same time the Bureau of Labor Statistics consumer expenditures survey shows that auto insurance spending remains constant, consumers must be offsetting higher prices by buying less insurance.

In the comments section of the post, I.I.I.’s chief economist, Dr. Steven Weisbart addresses Baker and Harmon’s analyses of the various measurements of auto insurance costs and refutes the assumption that policyholders are assuming more risk as opposed to comparison shopping for cheaper polices, for example.

His full response appears below.

Dean Baker and Matt Harmon are correct that “there are aspects to the issue [of measuring inflation in insurance] that are informative about how we measure and think about inflation,” but their analysis is mistaken.

The CPI does, in general, aim to measure price changes in “quality-adjusted” goods and services. Its method for doing this for auto insurance is, unfortunately, seriously deficient. This is because auto insurance premiums are expected-cost driven. (By law, insurers cannot charge to make up for losses in prior years or charge in one state to make up for losses in another state.) Further, premiums are set based not only on expected claims (and claims adjustment expenses, including litigation defense for some third-party collisions), but also on expected investment income from the period between collection of the premium and the payment of a claim. The BLS methodology for determining current prices for auto insurance does not—indeed, cannot—capture these forces. Without recognizing them, premium increases in the current year over the prior year is mistakenly perceived as inflation.

In the last few years, there has been a dramatic upsurge in both the frequency and severity of auto insurance claims, both private passenger auto and commercial auto. Although severity (the average dollar cost of claims, unadjusted for quality improvements in recent years) has been increasing for a long time, increases in frequency (the number of claims per exposure unit) have been unusual and have been rising sharply. The Insurance Information Institute has discussed this in a white paper, identifying some of the major causes of these increases as increased congestion from the continued growth in the number employed, increased distracted driving, and higher speed limits in some cases. Auto insurers did not foresee these changes. They also (with many others) did not foresee the continued low interest rates that delivered lower investment income than they would have earned (and which they would have used to keep premium increases down) and in recent years increased premiums to try to get “ahead of the curve.” These are not inflationary increases in a quality-adjusted financial service.

Moreover, the BLS measure doesn’t try to capture what people pay. It created a hypothetical buyer and asks a panel of insurance companies what they would charge that buyer. The response doesn’t capture discounts that many insurers offer, such as for insuring both auto and home and other coverages with the same company, or for being a long-term policyholder, or being accident-free. As Baker/Harmon recognize, increases in what people pay for auto insurance have been much smaller than the BLS inflation measure. They infer that this means policyholders are assuming more risk. That’s possible, but other inferences are equally possible—such as that comparison shopping has led them to find the same coverage for a lower premium, or that some coverages are no longer cost-effective as their cars age.

Finally, the 9.0 percent year-over-year increase cited by Baker/Harmon is a bit of a cherry-picked datum. On the day the blog post was published, BLS released its CPI report for June 2018. It shows the CPI for auto insurance at 7.6 percent. Further, in two months the auto insurance component of the CPI will likely drop further, since the 12-month figure includes an unusual 0.9 percent increase in August 2017 that is unlikely to be matched in July or August 2018. Note that in the four most recent months of 2018 increases in the auto insurance component of the CPI were 0.3 percent in March, -0.2 percent in April, 0.4 percent in May, and 0.3 percent in June.