Filed Under:Claims, Auto

Dealing with the rising costs of car crashes

Insurers offer solutions to address factors — such as El Niño and legalized marijuana — that are driving claims.
Insurers offer solutions to address factors — such as El Niño and legalized marijuana — that are driving claims.

The strong El Niño, which had a moderating influence on the recently concluded Atlantic Hurricane season, also could help tamp down discussions of polar vortexes this winter — and that's good news for homeowners.

But forecasters predict El Niño could bring cooler but wetter conditions in Southern states and above-average temperatures in the North. These weather conditions could contribute to an increase in car crashes — and that's bad news for motorists and insurers.

Unfortunately, this comes at a time when the number of Auto insurance claims is already increasing and claims are becoming more expensive. These trends affect what consumers care about the most when it comes to their Auto insurance: the cost.

The claim severity or claim costs associated with auto accidents have been climbing steadily over the past decade. Costs driven by medical care and auto repairs have increased — on average, insurance claim costs for bodily injuries rose 42% and collision coverages are up 17% during the past decade. As you drill down deeper and look specifically at the costs primarily associated with repairing a vehicle following an accident, you will find that these costs are at all-time high.

Today's cars are more sophisticated, which makes them more expensive to repair. Cars have improved safety technology and are installed with high-tech computers. Body shops must use advanced diagnostic tools that require specialized training by technicians, which increases labor costs.

Over the years, the increase in claim costs had been offset by a decline in the number of claims filed. This helped keep insurance rates fairly stable for consumers. However, the trend line for accident frequency is starting to show an increase, which is pushing costs up and putting pressure on insurance rates for consumers.

The key to understanding what's driving the increase in the number of accidents is to recognize the different factors that contribute to automobile accidents. Data suggests that traffic congestion, either independently or in combination with other factors, is the likely cause of the increase we are seeing.

There are some common factors in the states that have seen the largest increases in accidents, such as traffic congestion, distracted driving, increase in miles driven and changing demographics, particularly more senior or young drivers. These factors have traditionally affected the number of accidents.

car crash

The development and expansion of collision avoidance technology shows promise in reducing the kind of low speed accidents that occur mostly in dense traffic. (Photo: Shutterstock)

Promoting safety through public policy

Now, new public policy initiatives could be the impetus for a higher frequency of auto accidents. Data shows that red-light cameras have been reducing red light running and the number of T-bone intersection accidents that result in some of the most severe crashes and injuries. However, a byproduct has been a jump in the number of “fender bender” rear-end crashes as drivers stop abruptly and the vehicles following them cannot stop in time.

Another trend we examined shows that the use of marijuana may be contributing to the increase in accidents. Of the eight states with the largest increase in auto accident frequency, seven have liberalized their laws on marijuana to some degree. That correlates with a recent federal study finding that the number of drivers with marijuana in their system grew by nearly 50% from 2007 to 2014.

When it comes to accident safety, the insurance industry has been in the vanguard. From crash testing with the Insurance Institute for Highway Safety, to championing seat belt use and graduated drivers licenses, insurers have always looked for ways to protect the public if they get in an accident—as well as after an accident has occurred—by advocating for safe repairs and protection from fraud and abuses of the medical and legal systems.

As we look at these trends, there are several important fundamental issues that insurers and policymakers can work together on to address the costs impacting drivers' insurance.

A recipe for attacking cost drivers and public safety includes implementation of sound distracted driving laws such as text message and handheld cellphone use bans, which are the kind of activities that are frequently observed in congested traffic conditions.

Similarly, the development and expansion of collision avoidance technology shows promise in reducing the kind of low speed accidents that occur mostly in dense traffic. For older drivers, states should be encouraged to shorten the intervals between license renewals, and have more vision testing and in-person renewals.

Related: Toyota starts $1 billion center to develop cars that don't crash

Finally, policymakers need to examine the effects of liberalized marijuana laws on impaired driving, and identify the law enforcement challenges involved in determining impairment.

There are other important consumer protections that can also impact the cost of auto accidents. Currently many carriers work with auto body and glass repair shops to ensure that consumers receive quality repairs after an accident. Consumers and their insurers have a high stake in making sure vehicles are properly repaired. Through the existing relationships insurers have with shops, they can provide consumers with guarantees on the work, often for as long as the policyholder owns the vehicle.

Being able to maintain these relationships with shops that have a track record of providing cost-effective, high quality repairs also means that well-maintained cars are returned to the roads which helps promote safety for all motorists. Cost savings are also possible through support of laws that crack down on fraud and frivolous lawsuits.

It is critical for policymakers to be focused on strategies and public policy solutions that can help reduce the number of automobile accidents as well as the costs that impact consumers. The first step is taking a realistic look at the data trends and the external forces — including recent public policy changes — that are working together to drive up insurance costs. This approach will keep motorists safe and contribute to lower insurance costs for all consumers.

Robert Passmore is the assistant vice president, personal lines policy of the Property Casualty Insurers Association of America.

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