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What's happening to claim frequency?

Over the last decade, the US saw a  significant rise in miles driven, which may explain the rise in claim frequency. However, based on the latest data, the increased numbers in both claims and miles driven seem to be slowing down. An in-depth look shows this may be correlated to the rise in gas prices. (Photo: Getty Images/CCC Insurance)
Over the last decade, the US saw a significant rise in miles driven, which may explain the rise in claim frequency. However, based on the latest data, the increased numbers in both claims and miles driven seem to be slowing down. An in-depth look shows this may be correlated to the rise in gas prices. (Photo: Getty Images/CCC Insurance)

Increases in auto claim frequency have been a topic of great interest to all in our industry. Numerous factors such as thos illustrated in Figure 1 have been central to returning automotive claim frequency back to pre-recession levels. 

An in-depth look specifically at miles driven data helps us understand why claim frequency continues to rise, but is rising at a slower rate than what we saw in 2014-2016.

The latest data on miles driven in the U.S. shows continued growth in the overall miles driven in the U.S. Year-to-date through July 2017, miles driven in the U.S. are up 1.5 percent from the same period in 2016.

Numerous factors such as thos illustrated in Figure 1 have been central to returning automotive claim frequency back to pre-recession levels.

This is a much slower rate of growth than what we’ve seen in prior years, as illustrated by Figure 2  Even high growth areas such as the West and Southeast Census regions are seeing a slowdown in overall miles driven.The latest data on miles driven in the U.S. shows continued growth in the overall miles driven in the U.S.

Much of the slowdown may be related to higher gas prices during the first 29 weeks of 2017. According to an August 2017 article in Body Shop Business magazine featuring research from the NPD Group, a price increase of just 1 cent per gallon leads to a spending increase of $4 million per day in the U.S., which is impacting consumers' inclination to take those extra trips they might otherwise take when gas is cheaper.

Many studies have been published that examine the correlation of miles driven to gasoline prices. The premise is that people drive more, and at faster rates, when gas prices are lower; and people are also less likely to use public transportation.  Additionally, other studies have been completed that look at the short-term effects of gasoline prices on traffic crashes, which were found to be generally stronger than the delayed effects. In other words, when gas prices are cheaper, people generally begin to drive more right away, but over the long term those increases tend to flatten out.

Miles driven annually had fallen during the recession, then rose, but have since returned to levels last seen in 2012. 

This is evident when we look at the miles driven per vehicle based on industry-wide collision and liability losses (see Figure 3 above).

Miles driven annually had fallen during the recession, then rose, but have since returned to levels last seen in 2012. During that same time, quarterly claim frequency has also begun to see smaller rates of increase, as illustrated by Figure 4 (at right). Miles driven annually had fallen during the recession, then rose, but have since returned to levels last seen in 2012. During that same time, quarterly claim frequency has also begun to see smaller rates of increase

Industrywide, repairable claim counts industrywide year-to-date 2017 through Q3 were up 2.2 percent.  Excluding comprehensive losses the industry experienced a decline of 0.4 percent in Q3 2017, after growth between 1-2 percent in the 1st half of 2017, ending up 1.9 percent year-to-date through Q3.  Total loss claim counts — especially those related to Hurricane Harvey and Hurricane Irma — were up sharply, and non-comprehensive total loss frequency also continues to rise (see Figure 5 below).

Total loss claim counts — especially those related to Hurricane Harvey and Hurricane Irma — were up sharplyIt is likely that frequency will see only moderate increases over the next several years as long as we see no major economic slowdown or widespread severe winter weather like in 2014 and 2015. Registered vehicle counts in the U.S. are forecast to grow a bit more slowly, but with more vehicles on the road, and moderate growth in the miles per vehicle, overall ‘exposure’ rates are still elevated to pre-recession levels. With market penetration of collision avoidance systems accelerating however, claim frequency will over time decline, most likely in a meaningful manner beginning in 2020.

Susanna Gotsch is director of analytics in Product Management at CCC Insurance. She can be reached by sending email to sgotsch@cccis.com.

The information and opinions in this publication are for general information only, are subject to change and are not intended to provide specific recommendations for any individual or entity. Although information contained herein has been obtained from sources believed to be reliable, CCC does not guarantee its accuracy and it may be incomplete or condensed. CCC is not liable for any typographical errors, incorrect data and/or any actions taken in reliance on the information and opinions contained in this publication. Note: Where CCC Information Services Inc. is cited as source, the data provided is an aggregation of industry data related to electronic appraisals communicated via CCC's electronic network or from total loss valuations processed by CCC.

Registered vehicle counts in the U.S. are forecast to grow a bit more slowly, but with more vehicles on the road, and moderate growth in the miles per vehicle, overall ‘exposure’ rates are still elevated to pre-recession levels.

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