Auto Prices Are Going Up!

Jeff Cavignac, CPCU, RPLU, ARM
Loss experience on auto policies is deteriorating and auto premiums are going up.  State Farm, the largest U.S. home and auto insurer, lost $7 billion on their auto book in 2016!  They announced that they plan to close 11 of their offices due to this.  From a commercial insurance perspective, most of the companies we do business with (and that includes nearly all of the major U.S. insurance companies writing automobile insurance) are seeking 10-15% rate increases on renewal.  What is happening?  What is driving the increase in claims frequency and severity?

  • There are more cars on the road. Total miles driven has increased over the past several years, especially in California.  More vehicles means higher claims frequency.
  • Distracted driving. We all see it, and most of us have done it.  Whether it’s answering a cell phone call, texting or fiddling with the radio, distracted driving is increasing claims frequency.
  • Medical costs keep going up. Just look at what you pay for health insurance; this increases claims severity.
  • Inexperienced drivers. As the economy improves, more drivers are needed and there is a shortage of skilled commercial drivers.
  • It costs more to fix a car today than it did 10 years ago. Today’s bumpers are integrated into the body and include sensors and cameras.  Even a minor accident can cost big bucks!

What can a company do to proactively manage their auto exposure?

There is no substitute for an effective Fleet Safety Program. Among other things, this program should include:

  1. Driver Training – both online and on the road
  2. Driver Screens – what is and is not an acceptable Motor Vehicle Report
  3. Rules on who can and cannot drive a company vehicle
  4. Requirements for those who drive personal autos on company business
  5. Post-accident response training – what to do when there is an accident
  6. Post-accident review – every incident should be discussed
  7. Telematics – wireless monitoring and tracking programs should be considered

You will never be able to avoid the possibility of an auto accident; however, proactive risk management will substantially reduce the frequency and severity of those accidents. While you cannot control the auto insurance market’s upward pricing trend, you can control your company’s individual experience.  In the long run, the only way to lower your auto premiums is to improve your loss record.