Triple-I Sponsored Academic Study: Rising Costs, Not Insurer Profits, Drive Auto Rates Higher

Prominent Risk Management Academics’ Findings Are Published, Noting U.S. Auto Insurer Claim Payouts Equaled or Exceeded Their Revenue for Four Years


For immediate release
New York Press Office: (212) 346-5500; 

NEW YORK, January 7, 2020—U.S. auto insurer claim payout costs largely determine what a typical driver pays for coverage, according to a new study published in the National Association of Insurance Commissioners’ (NAIC) Journal of Insurance Regulation

The study was commissioned by the Insurance Information Institute (Triple-I) through its non-resident scholar network. The authors—Professors Martin Grace, Tyler Leverty, and Lawrence “Lars” Powell—are leading academics in the field of risk management at Temple University, the University of Wisconsin and the University of Alabama, respectively.

The study, Cost Trends and Affordability of Automobile Insurance in the U.S., analyzes auto insurer claim payout cost trends nationwide dating back to 1985 and identifies strategies to lower them and thereby reduce auto insurance premiums. In fact, the study shows in each year from 2014 through 2017 U.S. auto insurer claim payout costs either equaled or exceeded the monies auto insurers received in premiums and made from investments associated with that line of business. It also illustrated how increases in auto insurance premiums are driven by auto insurer claim payout costs rather than insurer profits.

Even drivers who have not ever filed a claim, or did so long ago, may in some years see their auto insurance premiums increase. This is because auto insurer claims payout costs—the monies paid out in claims, plus the expenses incurred in processing them—are shared by every one of an auto insurer’s drivers.

“Keeping expenses low and on budget is a key concern for nearly all Americans, which is one reason why the Triple-I’s article on the nine ways to lower your auto insurance costs is one of the most widely read items at our website each year,” said Sean Kevelighan, CEO, Triple-I. “While it can be seemingly easy to suggest insurance rates are solely a result of a carrier’s desire to make a profit, a fact most in the business already know is that underwriting oftentimes represents a small fraction of operating profit. The study set out to illustrate and explain the real drivers of auto insurance rates, many of which the carrier has absolutely no control.”

The study identifies four factors that drove recent increases in U.S. auto insurer claim payout costs:

  • Economic Growth – There is a strong correlation between economic activity and driving. During the U.S.’s recession between 2007 and 2009, miles driven decreased substantially nationwide. As the U.S. economy recovered, more drivers returned to the U.S.’s roadways and cumulatively drove more miles. This trend resulted in a greater number of auto crashes, which contributed to higher auto insurance claim payout costs
  • Collision Repair – The introduction of new automotive technology improved safety (e.g., crash avoidance sensors) and increased fuel efficiency (e.g., replacing steel with aluminum) but also increased the cost of either repairing or replacing damaged vehicles
  • Distracted Driving – Talking on handheld cell phones and texting while driving leads to more accidents
  • Medical Inflation – Increases in the cost of hospital care, which grew 4.4 percent in 2018, according to the federal government, put economic pressure on the U.S.’s auto insurers. The study also cites research indicating auto insurers generally incur more expensive types of hospital services or are charged higher prices than other payers for similar services

“We find that the recent increase in the cost of auto insurance is strongly correlated with increases in the frequency and severity of auto accidents. The increase in the frequency and severity of auto accidents is likely due to increases in the miles driven during a period of economic expansion. The evidence also points to distracted driving, the increasing cost of collision repair and medical cost inflation as contributing factors,” the study stated, adding elsewhere that, “Auto insurance markets are highly competitive and insurer profits have not risen with the cost of automobile insurance.” The consumer price index (CPI) for auto insurance rose less than 2 percent in 2019 after increasing 7 percent in 2018, according to the U.S. Labor Department.

The study examines several strategies to reduce the price of auto insurance, including:

  • Outlawing the use of handheld cell phones and texting while driving, and enhancing enforcement of existing laws
  • Controlling escalating medical care costs and addressing the role auto insurance plays in subsidizing insufficient payments from other healthcare payors
  • Reforming civil justice systems to reduce incentives to inflate claims and to limit monetary damages for pain and suffering


The study recommends against increased rate regulation, noting U.S. markets are competitive and auto insurer profits are thin. Finally, the study maintains previous studies on U.S. auto insurance affordability have overstated the perceived problem. Auto insurance premiums account for only about 10 percent of the cost of private automobile transportation, the study noted, with the pricier parts of driving attributable either to buying or to leasing a vehicle, purchasing gasoline, and keeping the vehicle maintained.

In addition, previous studies on auto insurance affordability, the study continued, excluded personal retirement savings as a source of income for older drivers and ignored the possibility prospective drivers had access to public transportation as a more cost-effective transportation alternative.

“Triple-I is grateful to this group of esteemed scholars for taking an objective, fact-based look at this important issue,” Kevelighan added. “And we are grateful for the recognition of their work by the Journal of Insurance Regulation, which is published by the industry’s regulatory representation body, the National Association of Insurance Commissioners.”

About the Study’s Authors

The NAIC Journal of Insurance Regulation study was written by Martin Grace, JD and PhD, the Harry A. Cochran professor of risk, insurance & health care management at the Temple University Fox School of Business; Tyler Leverty, PhD, the Gerald D. Stephens distinguished chair in Risk Management and Insurance, and an associate professor in the Department of Risk and Insurance at the University of Wisconsin School of Business; and Lawrence Powell, PhD, executive director of the Alabama Center for Insurance Information and Research located in the University of Alabama’s Culverhouse College of Business.


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