Category Archives: Auto Insurance

Delaware Legislature Adjourns Without Action on Banning Gender
as Auto Insurance Factor

Delaware’s state Legislature adjourned for the year without the House taking action on Senate Bill (SB) 231, which called for prohibiting the use of gender as a rating factor in personal automobile insurance policies.

The measure was based on research conducted with the Consumer Federation of America that contended many insured Delaware women are charged more than men, even when all other factors are the same. If signed into law, it would have required Delaware’s auto insurers to revisit how they price their personal automobile insurance policies for all drivers. Six states – California, Hawaii, Massachusetts, Michigan, North Carolina, and Pennsylvania – already have similar laws in place.

“The Delaware state Legislature and the Department of Insurance have the right and responsibility to govern and regulate how insurance companies conduct business within the State of Delaware,” Triple-I Chief Insurance Officer Dale Porfilio wrote in response to SB 231, which was approved by the Delaware Senate in April 2022. However, in his letter to Delaware Insurance Commissioner Trinidad Navarro, he raised several concerns with the underlying research, including:

Website Quotes vs. Issued Policies. While the Internet and electronic processing of quotes have dramatically improved the speed and accuracy of quotes, Porfilio wrote, “Many details can change for the portion of quotes which ultimately become issued policies, causing quotes to not be 100 percent accurate for issued premiums.”

Single Hypothetical Insured vs. Range of Actual Insureds. The report studied hypothetical 35-year-old drivers, then drew a conclusion about the full breadth of female and male drivers in the state of Delaware.

Aggregation across Zip Codes. Pricing methodologies are refined to very specific territorial definitions, which vary by insurer, and the report does not describe how the sample was aggregated across Zip Codes.

Porfilio explained that a consequence of enacting S.B. 231 would be a redistribution of who pays how much premium, with most of the premium increases paid by female policyholders (notably at younger ages), and a majority of the premium decreases received by male policyholders.

Critics of U.S. auto insurer pricing practices have expressed concerns that certain rating factors discriminate against certain groups. Triple-I has explained in multiple contexts how U.S. auto insurers use a wide variety of rating factors to accurately price policies.  These factors must conform to the laws and regulations of the state in which the auto insurance policies are sold,  and eliminating any one could force less-risky policyholders to overpay and allow those with greater risk to pay less than they should.

Learn more about auto insurance pricing

Triple-I: Rating-Factor Variety Drives Accuracy of Auto Insurance Pricing

Why Personal Auto Insurance Rates Are Likely to Keep Rising

IRC Releases State-by-State Auto Insurance Affordability Rankings

IRC Study: Public Perceives Impact of Litigation
on Auto Insurance Claims

Most Americans believe attorney advertising increases the number of liability insurance claims and lawsuits, according to recent research from the Insurance Research Council (IRC). The survey also indicated that consumers see a connection between attorney advertising and insurance costs.

The IRC – like Triple-I, an affiliate of The Institutes – also found that consumer awareness of third-party litigation funding has increased, though many Americans remain uncertain what to think of the practice. Litigation funding – in which third-party investors assume all or part of the cost of a lawsuit in exchange for a percentage of the settlement – is often cited as contributing to “social inflation.” Social inflation refers to the impact of rising litigation costs on insurers’ claim payouts, loss ratios, and, ultimately, how much policyholders pay for coverage.

“The public sees a connection between attorney ads and the cost of insurance,” said IRC President and Triple-I CEO Dale Porfilio, FCAS, MAAA. “Two-thirds of respondents who had an opinion said advertising by attorneys increases the number of liability claims and lawsuits. Fifty-nine percent said such advertising increases the cost of insurance.”

The survey also found 81 percent of Americans had seen an attorney advertisement within the past year. Thirty-nine percent had never heard of the term “litigation funding.”

The IRC study, Public Attitudes on Litigation Trends and the Role of Attorneys in Auto Insurance Claims, consisted of an online survey with over 1,500 respondents. It also uncovered that:

  • Consumers generally expect insurers to settle auto insurance claims fairly and quickly, but one in four say they would hire an attorney before even contacting an insurer;
  • The views of many consumers about the benefits of hiring attorneys to help with insurance claims conflict with evidence from claims-based research;
  • Most Americans believe there are too many personal injury lawsuits today;
  • Significant generational differences exist on these topics, with younger respondents being far more likely than older respondents to favorably view attorney involvement and litigation; and
  • The public’s level of understanding suggests some educational opportunities for those seeking to address costs in the insurance system.

“This survey builds on many years of IRC work examining the role of attorneys in insurance claims and the resulting consequences,” Porfilio said. “Our longstanding series of closed auto injury claim studies has shown an ever-increasing rate of attorney involvement, even among no-fault claims.”

Porfilio noted that these studies consistently show that claimants who hired attorneys waited significantly longer to receive their settlements and – after medical expenses and legal fees – those settlements were smaller than for claimants who did not.

“Given the costs added to the system and the lack of evidence of clear benefit for the claimant, it is important to understand public attitudes about attorney involvement,” Porfilio said.

Distracted Driving Surges Since Start of Pandemic

By Max Dorfman, Research Writer, Triple-I

Distracted driving in the United States has risen more than 30 percent from February 2020 to February 2022, as the coronavirus pandemic has upended driving patterns, according to a recent report by telematics service provider Cambridge Mobile Telematics (CMT). This comes despite improvements in other dangerous behaviors, like speeding, which has declined as traffic returned since the early phases of the pandemic.

Drivers in January 2022 averaged 1:35 seconds of distraction per hour, a high for the past three years. Additionally, in February 2022, this figure increased to 1:38 seconds – a 25.5 percent increase from February 2019, and a 30.3 percent rise from February 2020, which was the last month of pre-pandemic driving.

Additionally, evening and late-night distracted driving has dramatically increased compared to pre-pandemic levels, with evening distraction ballooning to almost 35 percent from February 2020 to April 2020. Late-night distraction has become even worse, with 40 percent of drivers in the same period. This trend has remained high, with the average time distracted standing at 1:29 seconds per hour by February 2022 for late-night driving.

The U.S. government takes notice

Recently, the Governors Highway Safety Association (GHSA) released a report detailing data limits and other barriers to limiting distracted driving. The report found that approximately 3,142 people died in distraction-related accidents in 2020, with an estimated 400,000 people injured each year in such crashes. The true numbers, according to the study, are likely higher due to underreporting.

The GHSA report also notes that the most prevalent and highest-risk behaviors include:

  • Cell dial;
  • Cell text;
  • Reaching for an object;
  • Cell-browse and;
  • In-vehicle device.

A total of 15 percent of police-reported motor vehicle traffic crashes recorded distraction as a factor, according to national crash data, with drivers aged 15 to 20 years at the highest risk for distracted driving in a fatal crash.

This comes despite 80 percent of drivers stating that talking on a hand-held cell phone is extremely or very dangerous. However, 37 percent admit to doing this. Almost all drivers (95 percent) said reading or typing a text or email on a hand-held cell phone while driving is extremely or very dangerous. However, 23 percent reported typing or sending a text or email on a hand-held cell phone at least once in the past 30 days, with 34 percent stating that they read on a hand-held device while driving.

Can telematics help?

A 2020 study by Triple-I’s sister organization the Insurance Research Council (IRC) focused on public perception and use of telematics, which can be used to lower the cost of insurance for responsible drivers.

Indeed, 45 percent of drivers surveyed said they made significant safety-related changes in the way they drove after participating in a telematics program. An additional 35 percent said they made small changes in the way they drive.

And although many individuals who made small or significant changes ultimately return to previous driving habits, one in four participants reported that they consider the changes made to be permanent, with an additional 19 percent saying they engaged in previous driving habits only rarely.

These kinds of shifts in behavior hold promise not only for the future of telematics, but for safer roadways with significantly fewer accidents.

Report: Policyholders
See Climate as a
‘Primary Concern’

By Max Dorfman, Research Writer, Triple-I (06/08/2022)

Nearly three-quarters of property and casualty policyholders consider climate change a “primary concern,” and more than 80 percent of individual and small-commercial clients say they’ve taken at least one key sustainability action in the past year, according to a report by Capgemini, a technology services and consulting company, and EFMA, a global nonprofit established by banks and insurers.

Still, the report found not enough action is being taken to combat these issues, with a mere 8 percent of insurers surveyed considered “resilience champions,” which the report defined as possessing “strong governance, advanced data analysis capabilities, a strong focus on risk prevention, and promote resilience through their underwriting and investment strategies.”

The report emphasizes the economic losses associated with climate, which it says have grown by 250 percent in the last 30 years. With this in mind, 73 percent of policyholders said they consider climate change one of their primary concerns, compared with 40 percent of insurers.

The report recommended three policies that could assist in creating climate resiliency among insurers:

  • Making climate resilience part of corporate sustainability, with C-suite executives assigned clear roles for accountability;
  • Closing the gap between long-term and short-term goals across a company’s value chain; and
  • Redesigning technology strategies with product innovation, customer experience, and corporate citizenship, utilizing advancements like machine learning and quantum computing

“The impact of climate change is forcing insurers to step up and play a greater role in mitigating risks,” said Seth Rachlin, global insurance industry leader for Capgemini. “Insurers who prioritize focus on sustainability will be making smart long-term business decisions that will positively impact their future relevance and growth. The key is to match innovative risk transfers with risk prevention and assign accountability within an executive team to ensure goals are top of mind.”

A global problem

Recent floods in South Africa, scorching heat in India and Pakistan, and increasingly dangerous hurricanes in the United States all exemplify the dangers of changing climate patterns. As Efma CEO John Berry said, “While most insurers acknowledge climate change’s impact, there is more to be done in terms of demonstrative actions to develop climate resiliency strategies. As customers continue to pay closer attention to the impact of climate change on their lives, insurers need to highlight their own commitment by evolving their offerings to both recognize the fundamental role sustainability plays in our industry and to stay competitive in an ever-changing market.”

Data is key

The report says embedding climate strategies into their operating and business models is essential for “future-focused insurers,” but it adds that that requires “fundamental changes, such as revising data strategy, focusing on risk prevention, and moving beyond exclusions in underwriting and investments.”

The report finds that only 35 percent of insurers have adopted advanced data analysis tools, such as machine-learning-based pricing and risk models, which it called “critical to unlocking new data potential and enabling more accurate risk assessments.”

Actuaries Tackle Race
in Insurance Pricing

The Casualty Actuarial Society (CAS) has developed a series of papers examining the issue of race and insurance pricing and seeking to contribute constructively to the policy discussion around it.

“Insurance pricing is a high-wire act,” CAS says.  Actuaries have to quantify and differentiate among a massive variety of risk variables while avoiding unfair discrimination. “As regulation and society’s understanding of discrimination evolve, however, it is necessary for us to keep abreast of changes in the manner in which discrimination is defined and adjudicated.”

The CAS research has generated four papers – two published this week, two more to be published on March 31 – that define, quantify, and propose methods for addressing unfair discrimination where it is found to exist.

Confusion around insurance rating is understandable, given the complex predictive models being used today, which can lead to inappropriate comparisons and inaccurate conclusions. Algorithms and machine learning hold great promise for helping to ensure equitable pricing. However, research has shown these tools also can amplify biases that manage to creep into their programming.

Recent Colorado legislation requires insurers to show that their use of external data and complex algorithms don’t discriminate against protected classes, as well as other state and federal efforts to address perceived bias in pricing.

The actuarial discipline and the insurance industry are well positioned to continue helping policymakers and corporate decisionmakers understand and address these inequities.

The CAS papers published this week are:

Methods for Quantifying Discriminatory Effects on Protected Classes in Insurance

Approaches to Address Racial Bias in Financial Services: Lessons for the Insurance Industry

Reducing Traffic Fatalities and Injuries Through Vision Zero

By Max Dorfman, Research Writer, Triple-I

Local governments in the United States in recent years have begun adopting “Vision Zero” policies, which aim at cutting roadway fatalities to zero. Such policies – which have demonstrated success abroad – have drawn even more interest since the onset of the pandemic, during which traffic fatalities and injuries have surged.

The Vision Zero Network is a nonprofit focused on helping local governments implement the Vision Zero plan. First implemented in Sweden in 1997, that country has seen its traffic fatalities halved, inspiring other governments to adopt similar measures. Vision Zero is also becoming an initiative for the entire European Union.

More than 40 communities across the United States have adopted these policies, including major metropolitan areas like New York City, Los Angeles, and Portland, Ore. In Portland, several data points are helping government officials better understand how to reduce traffic fatalities and injuries, including a high percentage of pedestrian crashes occurring because of long distances between marked crossings. Portland has taken the initiative, building “a system to protect pedestrians includes frequent safe crossings, street lighting, a cultural acceptance of slower speeds and people educated about how to interact safely on the streets.”

Success in Hoboken, NJ

Hoboken, a city of about 54,000 people across the Hudson River from New York City, has experienced zero traffic deaths for three years as of 2021. Instrumental in this has been Mayor Ravi Bhalla’s Vision Zero program. Mayor Bhalla’s 2019 executive order has resulted in the city extending its bike-lane network 38 percent in 2019 and 2020, with its total on-street network of 16.3 miles now nearly half of the city’s 33 miles of streets.

The city also has put in curb extensions at intersections, marked wider crosswalks, and timed traffic signals to give pedestrians a seven-second head start. When it’s warmer, major commercial areas of the city are closed to cars entirely or assigned as “slow streets” with decreased traffic and velocities.

“While we’ve made major progress in the past three years, having no pedestrian fatalities and a reduction in pedestrian injuries, we are striving to create even safer streets in the years ahead,” said Mayor Bhalla. “With the adoption of the Vision Zero Action Plan, we’ll be able to take even more actionable steps to reach our goal of all traffic-related deaths and injuries by 2030, one of the most ambitious Vision Zero goals in the entire country.” 

With these steps being implemented nationwide, entire communities are becoming safer. Additionally, insurers could potentially pass the savings produced by lower accident rates onto consumers, as they did earlier in the pandemic.

Now the U.S. federal government has announced its own version of Vision Zero. In late January, federal transportation officials released a plan to reduce the tens of thousands of road deaths that occur every year.

Why Personal Auto Insurance Rates
Are Likely to Keep Rising

Personal auto insurance premium rates have returned to pre-pandemic levels, but several trends are likely to sustain upward pressure on rates, according to a new Triple-I Issues Brief.

At the start of the pandemic, auto insurers – anticipating fewer accidents amid the economic lockdown – gave back approximately $14 billion to policyholders in the form of cash refunds and account credits. But while miles driven declined and accident frequency initially dropped, frequency and severity quickly started increasing again. Traffic fatalities also increased, after decades of steady declines.

While insurers’ personal auto loss ratios fell briefly and sharply in 2020, they have since climbed steadily to exceed pre-pandemic levels. With more drivers on the road and replacement parts climbing, this loss trend is expected to continue.

Auto premium rates reflect a range of factors that contribute to an insurer’s loss experience. In a world of perfect information, rate changes would correlate perfectly with changes in loss experience. As the chart below shows, until the pandemic these two metrics for the overall industry tracked quite closely. The disruptions of 2020 led to volatility for both, and losses have proved more volatile than pricing.

Barely profitable

To remain viable, insurers have to set premiums at levels appropriate to the risks they cover. Insurers’ underwriting profitability is measured by a “combined ratio”, which is calculated by dividing the sum of claim-related losses and all expenses by earned premium. A combined ratio under 100 percent indicates a profit. A ratio above 100 percent indicates a loss.

As the chart above shows, personal auto insurance has been a barely profitable line for the industry for years. If recent accident and replacement-cost trends persist, upward pressure on premium rates is likely to continue.  

Learn More

Facts + Statistics: Auto insurance

Why Did My Auto Insurance Costs Go Up Even When I Didn’t File a Claim?

Triple-I Offers U.S. Insights into Auto Insurer Pricing Factors

Truckers’ Premiums
Keep Rising, Despite
Safety Improvements, Coverage Changes

As with so many other goods and services, insurance for commercial trucks has become more costly since the pandemic – but a closer look at the numbers shows that this trend pre-dates COVID-19’s economic and supply-chain disruption.

“Despite reductions in insurance coverage, rising deductibles, and improved safety, almost all motor carriers experienced substantial increases in insurance costs from 2018 to 2020,” according to a recent report by the American Transportation Research Institute (ATRI). And, while frequency and severity have been on the rise from 2009 to 2018, the report shows the rate of insurance cost increases during the period far exceeding the crash rate increase.

ATRI’s observations are consistent with findings in a recent study by Triple-I and the Casualty Actuarial Society (CAS) that the phenomenon known as “social inflation” accounted for $20 billion in commercial auto liability claims between 2010 and 2019. 

“External factors that go well beyond carrier safety force commercial trucking insurance costs to increase,” says Triple-I Chief Insurance Officer Dale Porfilio. “The higher premiums ultimately tend to be passed along to consumers in the form of higher prices for goods and services.”

ATRI recognizes three key areas of influence on premiums beyond crash history and policy components:

  • Economic impacts on the insurance industry,
  • Carrier-specific factors, and
  • Social inflation.

External economic conditions, including general inflation and rising health-care costs, contribute to increased insurance premium rates.

“Medical advances help save lives, but these treatments directly contribute to higher medical costs,” ATRI points out. “Similarly, technological advances in motor vehicles contribute to increasing costs associated with repairing them; electronics now make up 40 percent of the cost of a new vehicle.”

These higher costs affect premiums through larger claims and losses that have to be incorporated into pricing.

Premium rates also are affected by carrier-specific considerations like operational sectors, cargo values, states or regions of operation, company growth, and commitment to safety culture and technologies.

“Carriers demonstrating consistent year-over-year improvements in safety technology adoption, safe driver hiring and training practices, and crash history can potentially lower their premium costs, despite the current adverse environment,” ATRI said.

“Social inflation” refers to the impact of litigation and government policy trends on insurance claims and, ultimately, costs to policyholders. Social attitudes and behaviors affect insurance payouts through changes in laws and propensity to litigate, and jury awards don’t necessarily reflect logical conclusions or precedents. Jury decisions can be influenced by emotions, state and local laws or procedures, and plaintiff bar tactics. In recent years, practices like third-party litigation funding – investment by hedge funds and other third parties in lawsuits in return for a share in the awards – have played an increasing role in social inflation.

Acting to Curb Rising Auto Fatalities

By Max Dorfman, Research Writer, Triple-I

After years of steady declines, traffic fatalities in the United States are on the rise, contributing to increasing auto insurance rates. This comes despite declines in the average number of miles driven due to the pandemic. In 2020, 38,680 deaths occurred on U.S. roads, the most since 2007.

In late January, federal transportation officials released a plan to reduce the tens of thousands of road deaths that occur every year, an issue that has become more significant since the beginning of the coronavirus pandemic.

“We cannot and should not accept these fatalities as simply a part of everyday life in America,” said Transportation Secretary Pete Buttigieg. “No one will accomplish this alone. It will take all levels of government, industries, advocates, engineers and communities across the country working together toward the day when family members no longer have to say good-bye to loved ones because of a traffic crash.”

Pandemic’s impact

Roadway safety in the United States had increased for decades before the pandemic, primarily due to enforcement of seat belt laws and vehicle safety features, such as airbags, improved braking, and stability control. Yet, the first year of the pandemic saw a 7.2 percent rise in U.S. roadway deaths from 2019. Some experts saw this rise in reckless driving as due, in part, to the isolation associated with the pandemic lockdowns. 

“You’ve been cooped up, locked down, and have restrictions you chafe at,” said Frank Farley, a professor of psychology at Temple University in Philadelphia.

In the early months of the COVID pandemic, insurers were giving rebates for personal auto policies, spurred by reductions in miles driven and anticipation of fewer accidents. However, it quickly became clear that reduced miles driven didn’t automatically lead to fewer deadly accidents. Instead, reckless driving – and fatalities – increased.

The end of pandemic shutdowns hasn’t helped either, with the U.S. Department of Transportation’s National Highway Traffic Safety Administration (NHTSA) estimating that 31,720 people died in motor vehicle traffic crashes for the first nine months of 2021, rising about 12 percent from the 28,325 fatalities projected for the first nine months of 2020. In Q1 of 2020, traffic fatalities were 1.12 per 100 million miles driven. By the end of Q3 of 2021, this number had spiked to 1.41 per 100 million miles driven.

What can be done?

The federal infrastructure deal promises to spend more on new safety measures, with the goal of eliminating road deaths. With this in mind, the Department of Transportation is implementing a Safe System Approach, under the premise that fatal accidents can be avoided if individuals understand the need for safe driving and accept that crashes can be avoided. The aim is zero traffic deaths.

Indeed, the Safe System Approach, which has been adopted across several countries in Europe, has seen remarkably positive results. Traffic fatalities fell 50 percent In Sweden and the Netherlands between 1994 and 2015.

“There are communities that have gotten to [zero traffic fatalities] already,” added Buttigieg. “And I’m not just talking about Oslo,” which experienced zero pedestrian deaths in 2019, “but a place like Hoboken, N.J., in the U.S. has seen multiple years with zero deaths.”

Auto insurance premium rates are affected by many factors, and accident and fatality trends are a major ones. Reckless driving trends – combined with increasing auto repair costs associated with safety, efficiency, and comfort – can only continue to put upward pressure on rates. Individual behavior and government policies must converge in the direction of improving responsibility and safety for all drivers.

Triple-I, CAS Quantify Social Inflation’s Impact on Commercial Auto

The phenomenon known as “social inflation” accounted for $20 billion in commercial auto liability claims between 2010 and 2019, a new study by Triple-I and the Casualty Actuarial Society (CAS) finds.

Social inflation isn’t a new term. Warren Buffett used it in the 1970s to describe “a broadening definition by society and juries of what is covered by insurance policies.” It has since become common parlance among insurers and risk managers for a range of factors causing losses in certain lines to rise faster than general inflation would predict. These include:

  • Class-action lawsuits;
  • Growing awards from sympathetic juries;
  • Third-party litigation funding, in which investors finance lawsuits against large companies in return for a share in the settlement; and
  • Rollbacks of tort reforms that were intended to control costs in the wake of the 1980s “liability crisis”.

Hard to measure, important to understand

Reliably quantifying social inflation for rating and reserving purposes is hard because it’s just one of many factors pressuring pricing. The paper, authored by actuaries James Lynch and David Moore, uses “standard actuarial metrics and visualizations to demonstrate how actuarial insights can be presented to an interested lay audience, such as lawmakers, regulators, the news media, and the public.”

This is an important contribution to the public policy discussion because actuaries are well positioned to spot shifts in loss severity.

Separately, Triple-I has published an “Issues Brief” that succinctly describes the drivers of social inflation, as well as its potential impact on insurers, policyholders, and the economy and society.

“More frequent suits and bigger awards can lead to increased insurance costs as rates are adjusted to reflect the changing risk profile – or even to insurers ceasing to write particular forms of coverage,” the brief says. “Higher premiums tend to be passed along to consumers in the form of higher prices and, in extreme cases, can ripple through the entire economy, creating conditions analogous to the 1980s liability crisis.”

In the 1980s, liability claims were pushing the U.S. insurance industry to the brink of collapse. Tort reforms – ranging from capping non-economic damages and limiting contingency fees to specifying statutes of limitations and eliminating “joint and several” liability – were enacted, and losses declined. It has been argued that legislative efforts to roll back these reforms in many states have contributed to social inflation, but the research is not conclusive.