Insurers Say Higher Gas Prices May Not Lead to Lower Claim Costs

Insurers caution public policymakers to not conclude that auto insurance premiums should be reduced because the high price of gas may be lowering the number of miles driven.

Based on a new paper by the Property Casualty Insurers Association of America (PCI) policymakers and regulators should be cautious in isolating one factor such as the number of miles driven and then assume auto insurance premiums should be lower.

“While there is solid evidence that the high price of gas has reduced the number of miles driven, it would be a mistake to assume that this means there will be lower insurance claims reporting and as a result, lower insurance premiums for consumers,” said Paul Magaril, regional manager and counsel for PCI.

In recent weeks the New York Superintendent of Insurance told insurers that they must supplement rate filings with a written analysis of how the effects of the rising price of gas in New York are reflected in their rate level indications and rate requests.

“We are encouraging the superintendent to not draw overly broad conclusions based solely on assumptions being drawn by consumers groups regarding the number of miles driven,” said Magaril. “While we support insurers taking a look at data regarding miles driven, there are many factors that determine what a consumer will pay for their auto insurance. As a result, it is necessary to explore in detail the trends of all of the various factors that have an impact on auto insurance premiums that consumers pay.”

PCI’s analysis of auto insurance claims in New York and across the country shows that while the number of claims reflecting vehicle damages has been reduced, the cost to repair those vehicles increased. According to PCI, average claim costs in New York have increased by nearly one-third since 2000.

“Unless claim costs are reduced, it would be unreasonable to expect insurance premiums to drop,” Magaril said.

PCI’s new paper highlights the statistics indicating that U.S. drivers are traveling fewer miles.

According to data gathered by the Federal Highway Administration from state highway agencies, the total number of vehicle miles driven during the 12-month period ending March 2008 (2.99 trillion) fell 0.8 percent compared to the previous 12-month period.

“As gas prices have soared many people are taking steps to reduce consumption,” said Diana Lee, assistant vice president of research for PCI. “Some drivers are combining errands with commuting to work, eliminating unnecessary trips, car pooling or more frequently using public transportation. While this results in fewer miles driven, we found that this is only part of a larger trend toward fewer accidents.”

PCI’s study showed that the recent surge in gasoline prices does not appear to be the cause of generally declining claim frequencies.

“We found that the rate of claims was dropping even during the early 2000s when gasoline prices were less than half of today’s cost. Based on the data, it cannot be said that the recent surge in gasoline prices is the cause of generally declining claim frequencies in New York, especially when frequencies have shown a slight increase over the last five quarters.”

Source: PCI