Despite the fact that U.S. motorists are driving less in the face of higher gasoline prices, increasing repair costs may keep auto insurance rates from declining, a new report says.
San Francisco-based Quality Planning (QPC), which questioned drivers for the study, said it is projecting a mileage decrease of 4-to-5 percent over the next 12 months.
However, the firm–which validates policyholder information for auto insurers–said drivers expecting to see lower insurance premiums because they cut their mileage "may be in for a surprise."
The price of oil, it was noted, "has had a similar dramatic impact on the parts that go into our cars and trucks." QPC mentioned that petroleum is used in rubber, plastic and polyester parts, making them more expensive to produce.
"These higher costs will be reflected in higher loss severity and, as a result, will act as a counterforce to the reduction in annual mileage," the report said.
However, while less driving may not result in a cutback, it may hold the line on some auto insurance premium prices.
New York regulators announced this week that GEICO, after discussions about the impact of driver mileage reductions, had withdrawn requests for rate hikes for some of its auto insurance companies. The department said it expects other auto insurers that have requested rate hikes to reevaluate their submissions in the face of falling mileage driven.
Auto carriers, the report advises, "must focus their pricing and products to address the consumer's emerging switch to new vehicle designs, new household vehicle mix, new driver usage patterns and a changing underlying cost structure."
Based on telephone conversations with drivers around the country, Quality Planning concluded that a majority of drivers will drive less in the coming year, with the biggest planned cutback occurring in "pleasure use" (when a vehicle is not being used for commuting or work-related purposes). Assuming gas prices remain at current levels, QPC said it projects a mileage decrease of 500 miles per year, per vehicle.
"With 250 million passenger cars on the road, this equates to 125 billion fewer miles driven. At an average 20 miles per gallon, this will result in a reduction in gasoline consumption of six billion gallons, equivalent to 307 million barrels of crude oil," said QPC President Raj Bhat. A barrel of crude oil yields approximately 19.5 gallons of gasoline, the report noted.
QPC said it found that while some commuters are reporting a shift to public transportation in areas that have well-developed transit systems, this shift has so far been insignificant and has not yet affected total commute miles driven.
Among rural drivers, the cutback in discretionary mileage is greater, the study found.
QPC said there is a disparity in the mileage reduction between areas with good transit systems and those areas with poor public transit, adding that people living in areas with fewer transit options are cutting back more on discretionary outings.
People with large SUVs, the company said, are economizing the most, with drivers of such vehicles more likely to be changing their driving habits.
QPC said it found that in multi-vehicle households, owners of vehicles with larger engine sizes plan to reduce miles driven by 5.5 percent, and shift some of the miles to more fuel-efficient smaller cars, resulting in an expected increase in miles driven on the smaller cars by about 2.8 percent.
The company, which is a unit of the Jersey City, N.J.-based Insurance Services Office, said it works with insurance companies to identify areas of significant rating areas using a variety of sophisticated techniques.
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