For those in the insurance industry and those who observe it,the reasons behind the poor results for personal auto in recentyears are no mystery: more cars on the road driving more miles,higher medical costs, higher repair costs for newer vehicles and —while difficult to estimate its precise effect — distracteddriving.
The degree of impact these factors have had on frequency andseverity trends, however, has perhaps caught many insurers offguard. Jim Lynch, chief actuary and vice president of research andinformation services at the New York City-based Insurance InformationInstitute, says the industry enjoyed a long period of lowclaims frequency and mild severity. As the U.S. emerged from theGreat Recession, claims frequency began to increase. Insurers reacted by raising rates, but then,more recently, severity spiked.
Frequency & severity punches
As Lynch puts it, the industry was “hit from the left” onfrequency, began to recover, but then hit with a “big roundhousefrom the right” with severity.
The increase in frequency stems mostly from people returning towork in the (albeit slow) economic recovery. Lynch notes about 40percent of miles driven occur during daily commutes, with many accidents occurring during rush hour.During the recession, as people lost jobs, fewer cars were on theroad — a trend that's reversed in recent years. Lower gas priceshave also encouraged drivers to hit the road more often. Theresult: frequency increased by more than 7 percent in the threeyears from 2013 to 2015, according to an October 2016 InsuranceInformation Institute (I.I.I.) white paper, “Personal Automobile Insurance: More Accidents,Larger Claims Drive Costs Higher.”
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