Uptick in Auto Claims Severity Due in Part to Distracted Drivers

Earlier this year, Fitch Ratings reported that the commercial auto insurance market suffered its fifth consecutive year of underwriting losses in 2015.

The commercial auto combined ratio averaged 106 percent from 2011-2015, Fitch reported.

According to James Auden, managing director for Fitch Ratings, the line’s lackluster performance is the result of overly aggressive pricing and an extended period of heightened bodily injury claims severity.

Though the report found that auto insurers responded to poor underwriting performance by repricing and other actions, the rate changes haven’t kept up with the loss experience.

Dhara Patel, president of the P&C Division at American Claims Management, said a spike in severity and frequency in commercial auto claims is cause for concern, and a result of a rise in medical costs associated with catastrophic injury claims and distracted driving. Patel spoke with Claims Journal in an exclusive interview during the recently held annual International Association of Claim Professionals’ annual conference in Sonoma, Calif.

The personal auto insurance market is experiencing the same trends. According to an Insurance Information Institute white paper released last month, private-passenger loss costs have risen sharply the result of more and costlier claims.

“There has been an alarming increase in crashes and claims reported. This, combined with the cost of the claims themselves, has led to a dramatic rise in the overall loss cost,” wrote the authors of the white paper, Personal Automobile Insurance: More Accidents, Larger Claims Drive Costs Higher.

Between Q1 2014-2016, collision claim frequency increased 2.6 percent and collision claim severity rose 8.2 percent, the white paper noted. Personal lines auto losses and premiums exceeded premium every year since 2007.

The rise in bodily injury claims severity is likely the result of safer cars on the road, Patel said.

In addition, the white paper’s authors stated, “An improving economy put more cars on U.S. roadways as a growing number of Americans found employment, the I.I.I. found, citing federal data showing the miles driven annually grew in recent years for the typical driver. The result is that despite increased safety features and public policy changes, more drivers means more chance for accidents. Weather and distraction are also discussed as possible drivers in increased accidents.”

The National Highway Safety Administration recorded a 7.2 percent increase in traffic fatalities last year.

“Until the past couple of years, the frequency of U.S. crashes had generally been dropping for many years while severity—the cost of paying these crash claims—was generally rising. Now they are both rising. That means private-passenger auto insurers are seeing more and costlier crashes, and that is why auto insurance costs are rising in many U.S. states,” said James Lynch, the I.I.I.’s chief actuary, who wrote the paper along with Dr. Steven Weisbart, the organization’s chief economist, and Dr. Robert Hartwig, special consultant to the I.I.I.

Although car accident injury victims are surviving, their injuries can be catastrophic, Patel said.

“Hence larger medical costs and higher severities,” she explained.

The rise in medical costs is also a contributing factor, she said, which may necessitate a fee schedule.

Patel emphasized the issue of distracted driving.

“The amount of people…in the claims that we handle that actually admit that they were texting or talking on the phone while they got into an accident is a bit troubling,” Patel said.

The National Occupant Protection Use Survey, conducted in 2014, found that at any given time more than 587,000 people are holding their cell phones while driving. A 2015 distracted driving survey by Erie Insurance found that nearly a third of all drivers reportedly texted while driving.

It’s impossible to rate for that [distracted driving], said Patel.