Category Archives: Auto Insurance

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

Lower-risk drivers should pay less for auto insurance, and premiums have closely tracked broader U.S. economic trends for decades, Triple-I told the U.S. Treasury Department’s Federal Insurance Office (FIO) this week.

In a letter responding to a federal Request for Information, Triple-I said U.S. auto insurers accurately price their policies by using a wide variety of rating factors.  All these factors must conform to the laws and regulations of the state in which the auto insurance policies are sold.

“There is no credible evidence that insurers charge more than they should, either across the broad market or in specific subsegments, such as neighborhood, race, income, education or occupation,” the Triple-I stated. The letter also said the rating factors U.S. auto insurers use to price their policies not only serve their purpose but are constantly retested to ensure their accuracy and reliability.

“If rating factors do their job well, they make insurance relatively inexpensive for some people and quite expensive for others,” the letter said. “In both cases, the assessment is correct. Drivers who present less risk pay less for coverage.”

The response to FIO’s information request highlighted how the appropriate price for an insurance policy varies greatly from customer to customer and from state to state.  Insurance is regulated by state governments.

“Insurance companies and their actuaries have focused on finding factors that make sure every customer pays the appropriate rate,” the Triple-I said. Rates are based on historical loss experience for similar risks. Premiums constitute the price customers pay for insurance coverage. 

Critics of U.S. auto insurer pricing practices have expressed concerns that certain rating factors, such as credit-based insurance scores and the geographic location of the customer’s residence, discriminate against lower-income drivers and minority groups. Triple-I explained that eliminating any rating factor – for whatever reason – forces those with less risk to overpay for auto insurance and allows those with greater risk to pay less than they should for auto insurance.

Interventions can backfire

“Eliminating factors does not affect the truth that they reveal, and if factors reveal that costs need to be high for a customer, banning them does nothing to change the underlying costs that are the reason the rate is high,” the Triple-I stated.

Regulators occasionally intervene in the rating process to make insurance less expensive for certain groups, citing the need to make insurance “affordable.”

“These interventions, however well-intentioned, can backfire in a spectacular way,” the Triple-I letter says, “raising the overall costs and severely reducing availability, as well as impeding innovations that could address the issue.”

Real problems need real solutions

Real solutions exist to make insurance more affordable, Triple-I says: “These solutions come not from tinkering with how insurers set prices but by addressing the costs that insurance covers.”

Improving the transportation environment and addressing societal issues that often force minorities and low- and moderate-income individuals to live and drive in circumstances where auto insurance costs the most are among the solutions suggested.

Extensive Triple-I research shows that rising claims costs have been the primary factor generating increased auto insurance rates.

Learn More From the Triple-I Blog

Here’s What’s Happening to Your Auto Insurance Costs

Auto Insurance Premiums Face Downward Pressure Due to COVID-19

Nevada Class Actions Against Auto Insurers Risk Hurting Policyholders

Policyholder Dividends Soar as Auto Insurers Respond to Pandemic

Auto Insurance Rates Decline Across U.S.

Auto Damage Claims Growing Twice as Fast as Inflation: IRC Study

Social Inflation:
Eating the Elephant
In the Room

“Social inflation” refers to rising litigation costs and their impact on insurers’ claim payouts, loss ratios and, ultimately, how much policyholders pay for coverage. It’s an important issue to understand because – while the tactics associated with it typically affect businesses perceived as having “deep pockets” – social inflation has implications for individuals and for businesses of all sizes.

The insurance lines most affected are commercial auto, professional liability, product liability, and directors and officers liability. There also is evidence that private-passenger car insurance is beginning to be affected. As increased litigation costs drive up premiums, those increases tend to be passed along to consumers and can stifle investment in innovation that could create jobs and otherwise benefit the economy.

For more on this, see: Social Inflation: Evidence and Impact on Property-Casualty Insurance by the Insurance Research Council (IRC).]

Much of what is discussed and published on the topic has been more anecdotal than data based. Reliably quantifying social inflation for rating and reserving purposes is hard because it’s just one of many factors pressuring pricing. We’ve found that the most meaningful way to think about social inflation and its components is to compare their impact on claims losses over time with growth in inflation measures like the Consumer Price Index (CPI).

Litigation Funding

It’s been said that the best way to eat an elephant is “one bite at a time.” Because of the diversity and complexity of social inflation’s causes and effects, we’re launching a series of blog posts dedicated to each one in turn. The first set of posts will look closely at litigation funding: the practice of third parties financing lawsuits in exchange for a share of any funds the plaintiffs might receive.

Litigation funding was once widely prohibited, but as bans have been eroded in recent decades, the practice has grown, spread, and become a contributor to social inflation.

[See: Litigation Funding Rises as Common-Law Bans Are Eroded by Courts on the Triple-I Blog]                                                                                                  

Litigation funding seemed a good place to begin this series because it’s a distinct legal strategy with a clear history that doesn’t involve a lot of the sociological subtleties inherent in other aspects of social inflation. We’ll look the emergence of the practice, how it came to the United States from abroad, and track its evolution with that of social inflation. We’ll also discuss the current state of litigation finance, along with ethical concerns that have been raised around it within the legal community.

This series will be led by IRC Vice President David Corum with support from our partners at The Institutes and input from our members, as well as experts beyond the insurance industry. As befits any discussion of a complex topic, we look forward to your reactions and insights.

More from the Triple-I Blog

What is social inflation? What can insurers do about it? (January 25, 2021)

Litigation funding rises as common-law bans are eroded by courts (December 29, 2020)

Lawyers’ group approves best practices to guide litigation funding (August 19, 2020)

Social inflation and COVID-19 (July 6, 2020)

IRC study: Social inflation is real, and it hurts consumers, businesses (June 2, 2020)

Florida dropped from 2020 “Judicial Hellholes” list (January 14, 2020)

Florida’s AOB crisis: A social-inflation microcosm (November 8, 2019)

Studies: Car Crashes Rise as Recreational Cannabis Becomes Legal in States

Connecticut this week became the latest state to legalize recreational use of marijuana, and more are expected to follow.

The increased marijuana use that accompanies legalization has raised concerns about road safety.

Researchers at Insurance Institute for Highway Safety (IIHS) and the Highway Loss Data Institute (HLDI) since 2014 have been examining how legalization has affected crash rates and insurance claims, and evidence is emerging that crash rates go up when states legalize recreational use and retail sales of marijuana.

The most recent of these studies, released on June 17 by the IIHS, shows that injury and fatal crash rates in California, Colorado, Nevada, Oregon, and Washington jumped in the months following relaxation of marijuana laws in each state. The five states experienced a 6 percent increase in injury crash rates and a 4 percent increase in fatal crash rates, compared with other Western states where recreational marijuana use was illegal during the study period.

Only the increase in injury crash rates was statistically significant.

“Our latest research makes it clear that legalizing marijuana for recreational use does increase overall crash rates,” says IIHS-HLDI President David Harkey. “That’s obviously something policymakers and safety professionals will need to address as more states move to liberalize their laws — even if the way marijuana affects crash risk for individual drivers remains uncertain.”

Insurance records show a similar increase in claims under collision coverage, which pays for damage to an at-fault, insured driver’s own vehicle, according to HLDI’s latest analysis. The legalization of retail sales in Colorado, Nevada, Oregon, and Washington was associated with a 4 percent increase in collision claim frequency compared with the other Western states from 2012 to 2019. That’s down slightly from the 6 percent increase HLDI identified in a previous study, which covered 2012  to 2018.

While the evidence that crash rates have increased in states that legalized marijuana is mounting, it appears that further study is needed to determine whether marijuana use alone is responsible. Preliminary data suggests people who use alcohol and marijuana together are accountable for most of the crashes.

Another factor may be that marijuana users in counties that do not allow retail sales are driving to counties that do. The increased travel could lead to more crashes, even if their crash risk per mile traveled is no higher than that of other drivers.

Auto insurance rates impacted by labor crunch, supply chain disruptions

In a recent interview with CNBC, Dr. Michel Léonard, Triple-I vice president and senior economist, explained how the return to pre-pandemic driving levels is resulting in higher auto accident rates.

More accidents mean a larger volume of more expensive claims for insurers to pay because of higher repair costs, delays in repair time due to chip shortages, supply chain disruptions and a labor crunch.

The consumer price index showed that the auto insurance index was up 16.9 percent in May from the previous year, following a 6.4 percent rise in April from the previous year.

Elyse Greenspan, a managing director at Wells Fargo, said the year-over-year increase resulted from the premium base in May 2020, reflecting pandemic-related refunds. Triple-I analysis shows that due to the sharp declines in the number of miles driven, U.S. auto insurers returned $14 billion to their customers last year.

Greenspan describes the current auto insurance market as still soft even after recent rate increases. Not all insurers are raising rates, she added. “It’s still a good environment for consumers who are purchasing auto insurance.”

Valuable metals make catalytic converters an attractive target for thieves

Huge spikes in catalytic converter theft have been reported throughout the nation in recent months. The anti-pollution devices contain precious metals such as platinum, palladium or rhodium and can be removed from the bottom of a car or truck in as little as five minutes.

Thieves are getting anywhere from $50 to $250 per converter from recyclers, according to the National Insurance Crime Bureau (NICB) and replacing the part can cost $900 or more.

In an effort to stem the thefts, the NICB has recently teamed up with several Virginia police departments to host catalytic converter etching events. During the events, mechanics etch and paint vehicle registration numbers onto the converters, which serves to track the parts if stolen.

Additional etching events are currently being scheduled in Virginia. The NICB encourages law enforcement across the nation to hold similar events to help combat catalytic converter theft.

Other theft prevention options include installing a steel shield that fits over the catalytic converter, requiring time and extra tools to remove the part; cages made of high-strength steel that’s difficult to cut; or stainless-steel cables welded from the catalytic converter to the car’s frame.

If your converter is stolen, the theft is covered by the optional comprehensive portion of your insurance policy in some cases. But you will be responsible for paying the deductible. If your deductible is $1,000 and the cost to repair the damage costs $1,000 or maybe a few hundred dollars more, you may not opt to file a claim.

Drivers are advised to contact their insurers to report the theft and determine the best course of action.

Expect a Memorial Day travel surge

This Memorial Day weekend, the unofficial start of summer, many are feeling a renewed sense of hope as COVID-19 infection rates fall and vaccinated individuals are given the green light to travel.

Over 37 million Americans are planning trips of more than 50 miles from their homes this weekend, according to AAA, an increase of more than 60 percent from last year, but still 6 million fewer than 2019’s pre-pandemic travelers on the same weekend.

Drivers are reminded to exercise caution on the roads, as Memorial Day has some of the highest auto accident rates, with alcohol consumption as a major contributing factor.

Triple-I recently spoke with Forbes magazine about avoiding some of the other hazards of summer, including car theft, grill fires, and dog bite liability.

We hope that you take the extra precautions outlined in the Forbes article — as well as review your insurance coverage – and have a safe, healthy summer.

“Landscape of Fear”:
What Wolves Can Teach Us About Risk Mitigation

Reintroducing wolves into areas where they’ve previously been decimated seems to reduce car crashes involving deer by nearly 25 percent.

Huh? What? Is this one of those “Correlation doesn’t equal causation” memes?

Not at all.

Scientists in Wisconsin have gathered data about road collisions and wolf movements in the state to quantify how the arrival of wolves affected the frequency of deer-auto collisions.

“In a pretty short period of time, once wolves colonize a county, deer vehicle collisions go down about 24 percent,” said Dominic Parker, a natural resources economist at the University of Wisconsin, Madison and co-author of their new study published in the journal Proceedings of the National Academy of Sciences.

You might say, “Well, of course – wolves eat deer, fewer deer means fewer collisions.” But it’s a bit more subtle than that. The scientists found that reintroducing wolves created what scientists call “a landscape of fear.”

“When you have a major predator around, it impacts how the prey behave,” Parker said. “Wolves use linear features of a landscape as travel corridors, like roads, pipelines and stream beds. Deer learn this and can adapt by staying away.”

Just one study

Now, of course, this is just one study, and it’s not being embraced by everyone – for example, farmers and ranchers who don’t love the reintroduction of predators that might kill their livestock or add to the cost of protecting the animals they raise.

“People who value the existence of wolves are often not in the same communities where wolves are present,” said Jennifer Raynor, Parker’s colleague and co-author. “Urban wildlife lovers may be happy to know that wolves exist out there, but rural people have to stare at the carcasses of livestock and pets.”

Deer-vehicle collisions “are happening in both urban and rural areas,” Raynor said. “No one is avoiding this problem” – which means rural people are also benefiting from wolves, whether they realize it or not.

On average, 19,757 Wisconsinites collide with deer every year, leading to about 477 injuries and eight deaths. Wolves save the state $10.9 million in losses every year, the scientists determined —a figure 63 times greater than the total compensation paid for the loss of livestock or pets.

The average cost of an animal-strike claim under comprehensive coverage for 2001-14 models during calendar years 2004-13 was $2,730. That’s a hefty price but still lower than the average payout of $3,510 for a collision claim, the Highway Loss Data Institute has found.

More research needed

Guillaume Chapron at the Swedish University of Agricultural Sciences, who studies large carnivores, says the team hasn’t provided enough information about their statistical methods, the degree of uncertainty in their results, or details on how to replicate their analysis.

“It may be that they found a new dimension to the role played by wolves, but their paper makes a critical evaluation of their findings impossible,” he said. “I’m sure it will be loved by wolf advocates, but much less by statisticians.”

Eyes on natural risk mitigation

More research clearly is needed before anyone should begin advocating large-scale reintroduction of wolves into populous areas with an eye toward reducing auto insurance claims and premiums. But the study highlights an area to which insurers are paying increasing attention: natural risk mitigation.

For example, interest has risen in how restoration of natural ecosystems – such as mangrove forests and coral reefs – can reduce insured losses caused by storm surge caused by hurricanes.

In many places, mangroves are the first line of defense, their aerial roots helping to reduce erosion and dissipate storm surge. A healthy coral reef can reduce up to 97 percent of a wave’s energy before it hits the shore. Reefs — especially those that have been weakened by pollution, disease, overfishing, and ocean acidification — can be damaged by severe storms, reducing the protection they offer for coastal communities. 

In Florida, a recent study found, mangroves alone prevented $1.5 billion in direct flood damages and protected over half a million people during Hurricane Irma in 2017, reducing damages by nearly 25 percent. Another study found that mangroves actively prevent more than $65 billion in property damage and protect over 15 million people every year worldwide.

Communities, businesses, and families looking to reduce damages and their associated costs should look closely at natural, pre-emptive mitigation.

Learn More on the Triple-I Blog

Man-Made and Natural Hazards Both Demand a Resilience Mindset

Hurricane Delta Triggered Coral Reef Parametric Insurance

Mangrove Insurance: Parametric + Indemnity May Aid Coastal Resilience

Mangroves and Reefs: Insurance Can Help Protect Our Protectors

Here’s what’s happening to your auto insurance costs

By James Lynch, Chief Actuary, Senior Vice President of Research and Education, Triple-I

You’ve probably been reading news stories about rising inflation, and auto insurance has been pulled into the picture. But that is a little misleading.

Auto insurance rates aren’t soaring. They are returning to normal, pre-pandemic levels.

Consumer prices in April were 4.2 percent higher than a year ago, the Bureau of Labor Statistics reported Wednesday, and its report picked out auto insurance as one of the areas that had “a large impact on the overall increase.”

Auto insurance rates were 2.5 percent higher in April than in March and 6.1 percent higher than a year ago.

That doesn’t mean, though, that the cost of auto insurance is skyrocketing. Remember that a year ago – April 2020 – insurers were busy returning billions of dollars to consumers because of the drastic change in driving patterns the pandemic brought on.

Those givebacks – which eventually totaled $14 billion – drove down the price of insurance, and the official inflation numbers reflected that.

Now driving patterns are returning to pre-pandemic norms – more or less. People are driving somewhat less than before, but they are driving faster and are much more likely to tinker with their smartphones or practice other distracting behaviors.

Premiums are reflecting the new normal, and in terms of the cost of insurance, that looks a lot like the old normal. The price of insurance, using BLS indices, is virtually unchanged from pre-pandemic levels – 0.01 percent higher than it was in March 2020, when the pandemic/recession began.

Be prepared for hail

Hailstorms are among the most destructive weather events, with hailstones ranging in size from a pea to a grapefruit.  When these frozen missiles plummet from the sky, damage to cars and buildings can be severe.

Steve Bowen, a meteorologist at Aon and director of the broker’s Impact Forecasting unit, has said hail can contribute as much as 50 percent to 80 percent of severe convective storm losses in any given year, with tornadoes, wind and flooding providing the rest.


An April 28 storm that included apple-size hail in in some parts of the Dallas-Fort Worth region caused close to $400 million in insured losses, according to the Insurance Council of Texas. Spokesperson Camille Garcia says the loss estimate is based on 32,000 car and homeowners claims sent to insurers through May 3. Most came from Tarrant County and the city of Keller. Once roof inspections are completed many more claims are expected.

State Farm alone paid out $474.6 million in hail claims in Texas in 2020, according to the company’s most recent Hail Damage report.

While you can’t prevent hail from failing on your property, you can lessen the possible damage by putting vehicles in the garage and moving patio furniture under cover. Close blinds and curtains to prevent broken glass from blowing inside and possibly causing injuries or damage.

For homes without garages, which is common in the South, I’m told, hail-resistant car covers can be an effective option.

If you do experience hail damage, your auto and home insurance policies will cover it. Take lots of pictures of the damage and submit your claim as soon as you can.

If contractors come knocking on your door, hold off on signing repair contracts. Do your due diligence, deal with reputable contractors, and get references. Consult your insurance adjuster before signing any contracts.

Click here for more insurance tips.

For more on hail damage trends and mitigation tactics, see Triple-I’s paper Severe Convective Storms.

A Little Care Can Prevent Tree Damage to Property

People have a mixed relationship with trees. On the one hand, trees provide beauty and shade – along with reducing carbon dioxide in the atmosphere and providing much of the oxygen we breathe. 

But let one fall on your house or bring your car to a sudden stop and suddenly trees become a problem.

For advice on keeping your trees healthy, your family safe, and preventing property damage, Triple-I talked to certified arborist Dylan Brown.

Much of the damage trees can cause to property is often covered by insurance. Generally speaking, if a tree hits your home or other insured structure, your standard homeowners insurance policy covers the damage to the structure and its contents.

Properly selected, placed, and maintained trees can provide excellent wind protection for a house, which can reduce heating costs and noise from neighbors and traffic. By putting thought and energy into planting and maintenance, homeowners can reap these benefits  while preventing much potential damage.

To minimize damage from your own trees, it’s important to maintain their health and properly prepare them for winter weather and storms.

While some trees don’t handle wind well, others can withstand some of the most powerful gusts. Blue River Restoration Services in Indianapolis recommends live oaks and maples, crepe myrtles, and cypress trees as “safe bets” when considering wind damage.

“These trees have strong roots to keep them in place and thick bark that supports them in windy conditions,” Blue River’s website says. It also recommends not to plant large shade trees within 12 feet of structures that could be damaged by tree roots.

“While most trees’ roots are not invasive enough to cause damage to your house or pavement, some will,” the website says. “Aspens, willows, American elms, and silver maples all have root systems that can stretch for acres. With these types of trees, there is no way to control their roots that can disrupt the foundation of your home.”

Tree roots don’t destroy the foundation but instead shift the soil under and around them, causing them to become unstable.

“Some homeowners deal with intrusive roots by grinding down or removing them,” Blue River says. “This can be expensive and is very harmful to the tree. Wounding a tree’s roots creates points of entry for pathogens, leaving a tree vulnerable to disease.”

A diseased tree is more likely to have branches that will break off and cause damage during high winds. Trees with inadequate root systems may blow over or break off at the ground line. A general rule is that you should not plant any trees within 20 feet of your house.

Insurance “what ifs?”

What happens if a neighbor’s tree falls on your house? You’ll need to file a claim with your insurance company. If negligence can be proved—such as a diseased tree or tree that wasn’t properly maintained — your company may try to collect from your neighbor’s policy. If that happens, you may be reimbursed for your deductible.

If a tree falls on your car, damage is covered under the comprehensive portion of your auto insurance policy.

Standard home insurance polices also provide coverage for damage to trees and shrubs due to fire, lightning, explosion, theft, aircraft, vehicles not owned by the resident, and vandalism Coverage is generally limited to about $500 for any one tree, shrub or plant.

For more Information:

If a Tree Falls on Your House, Are You Covered?

Understanding Trees and Tree Maintenance (a Triple-I video)

Preventing Trees From Falling (a Triple-I video)