One in eight drivers on U.S. roads was without auto insurance in 2019, according to a report released today by the Insurance Research Council (IRC).
At-fault drivers who don’t comply with state insurance requirements raise insurance costs for everyone else. Insured drivers paid more than $13 billion in 2016 (about $78 per insured vehicle) for protection against at-fault drivers who have inadequate coverage for medical costs and property damage they inflict on others.
“Keeping auto insurance affordable is more difficult when a significant number of drivers refuse to carry their fair share of the costs,” said David Corum, vice president of the IRC.
While countrywide the uninsured motorist rate was 12.6 percent in 2019, these rates varied substantially across states, ranging from 3.1 percent in New Jersey to 29.4 percent in Mississippi.
Although the uninsured motorist rate increased only 1.2 percentage points nationwide from 2015-2019, several states experienced more significant increases, including Washington (6.9 percentage points), Rhode Island (6.8 percentage points) and Mississippi (6.4 percentage points). Other states experienced decreases in uninsured motorist rates, including Michigan (10.1 percentage points) and Delaware (2.9 percentage points).
The IRC report, Uninsured Motorists, 2021 Edition, examines data collected from 11 insurers representing 60 percent of the private passenger auto insurance market in 2019. For more information on the study’s methodology and findings, contact David Corum, at (484) 831-9046, or by e-mail at IRC@TheInstitutes.org. For more information about the report, visit the IRC’s Web site at www.insurance-research.org.
Class action lawsuits filed in Nevada last month against 10 auto insurers are more likely to hurt policyholders than help them.
The suits contend that discounts, rebates, and policyholder dividends provided in 2020 – amounting to about $14 billion nationally – were not “meaningful” and that the rates charged violate state law against excessive premiums. The $14 billion figure does not include the more than $280 million in philanthropic contributions the industry has also made during COVID-19 to support communities.
The fact is, auto insurance premium rates fell nationally in 2020 for the first time in a decade. Insurers’ net income after taxes fell 26.1 percent through the third quarter of 2020, compared with the same quarter the previous year. A major factor was the pandemic-related discounts granted in 2020.
“The rate is lower because people are driving less,” said Triple-I chief actuary James Lynch, noting that during a lockdown period in the spring driving was down as much as 50 percent. Fewer cars on the road should lead to fewer accidents, and this expectation is what led insurers to proactively provide discounts and other policyholder benefits during the pandemic. Many auto insurers have built these discounts into premium rates for 2021, Lynch said.
Accidents down, fatalities up
Accidents did decline in 2020; unfortunately, traffic fatalities and claims increased. According to the National Highway Traffic Safety Administration (NHTSA), fatalities rose 4.6 percent in the first nine months of 2020, despite overall vehicle miles traveled having decreased. Fatalities in the third quarter of 2020 were 13 percent higher than in the same period of 2019 – the largest such increase in more than a decade. This suggests that driver behavior deteriorated rapidly and significantly during the pandemic.
The 2020 premium reduction would have even been larger, Lynch said, “if people had slowed down.”
The 2020 trend of increasing fatalities could worsen as traffic volume returns to pre-COVID levels. Data show that many motorists who substantially increased their driving speed when traffic was 50 percent below normal have not slowed down as traffic increased, Lynch said.
“The concern is that frequency patterns will return to the norm, but fast driving will keep claim severity high, putting upward pressure on rates,” Lynch said.
The salient point is this: Insurers have kept their promises to pay claims, given $14 billion back to policyholders, and generously supported communities through philanthropy – even as rising accident severity during the pandemic dented their net incomes. Defending themselves against frivolous litigation will only add to their expenses, and lower premiums are unlikely to be the result.
By Marielle Rodriguez, Social Media and Brand Design Coordinator, Triple-I
For Black History Month, Triple-I is putting the spotlight on Black entrepreneurs and innovative leaders in insurance. We sat down with Kevin Henderson, Founder and CEO of Indenseo, an analytics software company based in Palo Alto, CA to talk about his background in insurtech and how telematics is shaping the commercial auto insurance space.
Originally from West Medford, Massachusetts, Henderson moved to the Bay Area in California during the Web 1.0 internet boom in the late-1990’s, where he led the global data business for telematics company @Road [later acquired by Trimble] and partnered with commercial auto carriers on their telematics programs. Henderson’s extensive experience in insurance telematics led him to create Indenseo in 2013.
Data has an enormous potential for insurance, according to Henderson. We are now able to know in real-time what’s happening with the vehicle and how it’s being driven. Combining telematics data with contextual data like the road conditions, the limit is your imagination.
Yet, obtaining funding for Indenseo as a Black business owner provided initial hurdles for Henderson. Citing a Harvard Business article on diversity in innovation, he says there’s a positive correlation between the [racial] makeup of partners and those who get funded.” However, his difficulties with obtaining VC funding also led him to be more strategic in his fundraising approach. “It made [us] use the capital we did raise more efficiently,” he says.
While funding was an initial battle, Henderson shares the importance of having a vision and people around you that you trust.
“You need to have people around you that know the ecosystem, and people who will be honest with you. It’s a numbers game and you need to be creative. Learn how to target investors with an interest in the markets you’re trying to get into,” he says.
While telematics is synonymous with commercial fleets, use in personal lines insurance remains low. COVID-19 has revealed telematics’ potential in personal lines. “People are more open with sharing their data,” Henderson says. “The shift in driver behavior caused by the pandemic has revealed that people want to be priced based on how much they use their vehicles as opposed to a standard premium that doesn’t account for vehicle use.”
The COVID-19 pandemic has also brought its own set of challenges for Indenseo, including a slowdown in developing international business, but Henderson believes those opportunities will help expand his business in other countries. “Not everything can be done on Zoom. I will be back on airplanes when international travel and in-person meetings are practical again.”
As on the future of telematics in insurance, Henderson believes that commercial auto will evolve very differently than personal lines.
“The risks are different, and the technology is different. The risk you care about for an 18-wheel truck or a service van will be much different than the risk for a four-wheel sedan,” he says.
With the rise of new specialty markets and new companies, distribution models will change, and new products will emerge. All this makes the future of telematics and commercial auto insurance quite unpredictable and exciting.
Indenseo will be hosting a free webinar with Jeffrey Williams of Forrester on February 25th, 1PM ET as part of the “Connected Insurance” series on how IoT will transform insurance. During the webinar, they will talk about trends, technologies, and use cases.
Insurers saw more costly personal umbrella claims before the start of 2020, according to a Gen Re analysis, and the reinsurer expects such claims to continue as we emerge from the COVID-19 pandemic.
Personal umbrella insurance covers liability costs beyond the limits of the policyholders’ homeowners or auto policies.
Gen Re has uncovered some of the top drivers for the large claims, and they have to do with some of society’s harshest ills. Top reasons cited were increases in:
the annual poverty rate;
opioid prescription rates;
attorney representation; and
injuries involving a fatality and multiple claimants.
Other notable predictors linked with higher claims severity include laws permitting recreational marijuana and a lack of motorcycle helmet laws.
Gen Re said poverty, opioid use, and marijuana laws were unexpected predictors of umbrella claim severity and that all of the analysis’ findings “will facilitate deeper client interaction on this line of business.”
“Social inflation” – a term used to describe growth in liability risks and costs related to litigation trends – has been a growing concern for insurers. The phenomenon has mostly affected the commercial auto and general liability lines, but the findings here – particularly the increase in attorney representation – suggest that it might be making inroads into personal lines.
Auto insurance rates declined in 2020 for the first time in a decade, according to a recent survey by ValuePenguin.com. The survey results anticipate a 1.7 percent decline nationally.
A major factor in the decline are the pandemic-related discounts granted by insurers in 2020. These discounts have been valued at $14 billion, according to Triple-I estimates. Triple-I Chief Actuary James Lynch reported that many auto insurers are building these discounts into rates for 2021 and that driving declined by as much as 50 percent during spring lockdowns.
The estimate of just how much rates are declining depends on the metrics you use. The Consumer Price Index (CPI) report for December 2020 indicates that auto insurance rates declined by 4.8 percent nationwide compared with the same month last year. By contrast, the CPI showed the cost of new vehicles rising by 2 percent in December and by 0.5 percent for the full year 2020.
A comprehensive July 2018 assessment of the Missouri auto insurance market by the state’s Department of Insurance discovered even larger declines. It found that, when adjusted for inflation, the typical Missouri driver has seen a 17 percent decrease in auto insurance premiums since 1998.
More people died in New York City automobile accidents in 2020 than in 2019, despite greatly reduced driving as a result of the COVID-19 pandemic and subsequent economic slowdown. The local trend is consistent with broader ones recently referenced by Triple-I senior vice president and chief actuary James Lynch.
As of this morning’s reporting on WNYC, 227 people had died in car-related accidents this year in New York City, compared with 203 by this time last year. This increase appears to be due to more speeding and reckless driving, as documented by a doubling of speeding tickets in 2020, from more than 2 million to 4 million.
Similar trends are reported in other states. In Minnesota, 372 fatal accidents have been reported, compared with 346 this time last year. Wisconsin reported a 7.4 percent increase in auto fatalities.
During the first six months of 2020, Colorado’s traffic deaths rose just by just 1 percent from the same period in 2019 – but the fatality rate per vehicle mile traveled rose by 20 percent.
Nationally, Triple-I’s Lynch said, “mileage driven this year is down 12 percent, but traffic fatalities are up 4 percent. The concern is that frequency patterns will return to the norm, but fast driving will keep claim severity high, putting upward pressure on rates.”
WNYC’s Steven Nessen reported some good news with respect to pedestrian deaths in New York, which are down to 93 from 108 this time last year.
“If the city can keep it up, this may end up being the safest year for pedestrian deaths since Mayor DeBlasio took office,” Nessen said.
Nessen also noted that deaths of bicyclists in New York City were little changed in 2020 – notable because bicycle use has increased dramatically this year – and that reckless drivers “seem mostly to be killing themselves by hitting medians or trees.”
“Where we see a big jump in numbers is in motorcycle deaths,” he continued. “Those numbers nearly doubled this year, to forty-seven.”
This isn’t surprising, given that motorcycle fatalities – per vehicle miles traveled – occur nearly 27 times more frequently than passenger car occupant fatalities in crashes.
As the holiday season continues to ramp up, it’s important to remember that this time of year is particularly risky for driving. That’s why December has been officially designated Drugged and Drunk Driving Prevention month.
According to National Safety Council, the average number of traffic deaths during New Year’s Day over the last five holidays is almost 68 percent greater than the average number of traffic deaths during nonholiday periods, with 175 deaths compared to the usual 104 deaths.
Drunk driving is not the only reason people get into dangerous accidents during the holidays. Extreme weather can also contribute to risks during the blustery winter season, including snow, black ice, high winds and hail. Fatigued and stressed driving is also an issue during the holidays, with individuals potentially traveling further than they usually do. And in 2020, anxiety related to the coronavirus pandemic may make these stress-related issues worse.
With this in mind, it’s important to remember some tips to remain safe while driving during the holiday season, including:
Drive defensively by taking precautions while driving, paying close attention to the cars around you. Even if you’re not drinking or driving recklessly, others may be.
Do not drive if you are drinking, making sure you have safe, sober transportation, regardless of how far you’re traveling.
Plan for inclement weather by checking weather forecasts and changing your plans if necessary.
Remember: the holidays can be a busy and stressful time for people, but that’s no reason to let your guard down while driving.
The average payment for auto physical damage insurance claims increased at more than double the rate of inflation from 2010 through 2018, according to a new study from the Insurance Research Council (IRC).
The study, Patterns in Auto Physical Damage Insurance Claims, found that average payments increased 3.7 percent annualized during the study period, while the overall Consumer Price Index (CPI), as well as the CPI for motor vehicle maintenance and repair, grew 1.8 percent annualized.
“Damage to vehicles accounts for a growing share of the costs of paying auto insurance claims,” said David Corum, CPCU, vice president of the IRC. “As vehicle technology continues to evolve, an understanding of the cost drivers behind auto physical damage claims will be important in addressing issues in auto insurance availability and affordability.”
Other findings from the study:
Total losses have become more common and more expensive.
Catastrophe claims accounted for about one in five dollars paid for comprehensive claims.
Deductibles and policy limits have not kept pace with the growth in payments.
Physical damage claims have become less likely to have associated injury claims.
The rate of attorney involvement is lower in physical damage claims than in auto injury claims.
For most aspects of physical damage claims, there are significant differences among states.
According to National Association of Insurance Commissioners (NAIC) data, vehicle damage claims accounted for 60 percent of incurred personal auto losses in 2016, even as the injury cost index – a measure of injury costs relative to physical damage liability claims – declined. Enhanced passenger protections have contributed to a drop in the frequency of injury claims relative to the number of accidents, underscoring an important reality: auto safety improvements are effective but add to the cost of claims, as they lead to more expensive repairs when accidents happen.
With auto claims costs greatly outpacing inflation, it’s worth noting that – as Triple-I previously reported – auto insurance premium growth has trailed CPI growth, particularly since the COVID-19 pandemic and its subsequent economic downturn has led to insurers giving back $14 billion to policyholders in the form of refunds, premium reductions, and dividends.
The study presents findings from a collection of more than 220,000 claims closed with payment under the three principal private passenger auto physical damage coverages in claim years 2010, 2014, and 2018.
For more information on the study’s methodology and findings, contact David Corum at (484) 831-9046 or by email at IRC@TheInstitutes.org.
Drivers seem to have become more comfortable in the past year with the idea of giving up their data to help insurers more accurately price their coverage.
In May 2019, mobility data and analytics firm Arity surveyed 875 licensed drivers over the age of 18 to find out how comfortable they would be having their insurance premiums adjusted based on typical telematics variables. Between 30 and 40 percent said they would be either very or extremely comfortable sharing this data.
“This time,” Arity says, “about 50 percent of drivers were comfortable with having their insurance priced based on the number of miles they drive, where they drive, and what time of day they drive, as well as distracted driving and speeding.”
This is a year-over-year increase of more than 12%. What happened?
The answer begins with a “C” and ends with a “19.”
Telematic information was part of the reason insurers could return money quickly to their customers during the COVID-19 pandemic, and that fact seems to have brought positive attention to usage-based insurance (UBI). Telematics combines GPS with on-board diagnostics to record and map where a car is, its condition, and how fast it’s traveling. This technology is integral to UBI, in which insurers are able to adjust premiums based on driving behavior.
During the first wave of the pandemic, Arity data showed considerable changes in how and when people were driving when they began to self-quarantine in March 2020. Driving across the U.S. dropped significantly, and this data helped spark the trend of insurance carriers offering refunds to their policyholders.
“These paybacks were widely covered by the media, including Forbes, so consumers became aware of the potential savings, even if their own insurer didn’t offer a discount,” Arity reports.
“Private-passenger auto insurers returned around $14 billion in premiums this year to the nation’s drivers as miles driven dropped dramatically in the pandemic’s early months,” says James Lynch, Triple-I’s chief actuary. “This resulted in a five percent reduction in the cost of auto insurance for the typical driver in 2020, as compared to 2019.”
“Thanks for inviting me to be part of such an august panel. I wanted to spend a few moments talking about what Insurance Information Institute research indicates are significant changes happening in the sector right now and what may lie ahead.
Not surprisingly, the pandemic has had an enormous influence. Triple-I estimates that insurers will return $14 billion to customers because of the dramatic decrease in driving. Even with that, most insurers have shown improved results.
A good rule of thumb is that insurers returned about 15 percent of second quarter premiums. Fast Track data show that loss costs in the second quarter were between 7 and 40 percent lower than a year earlier, depending on coverage.
A closer look at the numbers show what might be a disturbing long-term trend. Frequency was way down in every coverage, but some coverages showed disturbing spikes in claim severity. Property damage frequency was down more than 30 percent from a year earlier, but severity was up almost 20 percent. This was likely caused by faster driving.
Since the spring lockdowns have eased, customers are driving more again, but they still haven’t returned to the levels of a year ago. Right now people are driving about 12 percent fewer miles than they did a year ago.
However, there is ample evidence that drivers are still going faster than they did, particularly at rush hours. That’s why mileage driven this year is down 12 percent, but traffic fatalities are up 4 percent. The concern is that frequency patterns will return to the norm, but fast driving will keep claim severity high, putting upward pressure on rates.
There’s good news for insurers though. Telematic information was an important reason insurers could return money quickly to their customers, and that fact seems to have brought positive attention to usage-based insurance. Research by Arity shows that 58 percent of drivers surveyed this year are comfortable with insurers monitoring distracted driving to price insurance, up from 39 percent a year ago. There were similar increases for monitoring miles driven, speed and where a person drives.
There are lots of other questions about where the industry is going, and I guess I’ll step back and let us talk about those as a group.”