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What’s Driving Cost Increases in Personal Lines

Personal lines policies are increasing in price – occasionally by double-digit percentages, Personal Lines Practice Group members agreed at this month’s teleconference.

The Consumer Price Index data shows that auto insurance costs grew by 7.6 percent in February 2017. This was among the statistics that JKJ’s George Pester, practice group chair, presented. Some of the others follow:

  • Accidents and injuries are increasing, as more people are driving now that the economy has rebounded and the price of gas has dropped.
  • The National Safety Council estimates that 40,200 people died in auto accidents in 2016, up 14 percent since 2014. This is the largest year-to-year increase in more than five decades.
  • The Federal Highway Administration shows a 9.4 increase in miles driven from 2013 to 2015. Increased congestion on the roads means a greater chance of an accident. The last two years also have brought more accidents caused by distracted driving, more complex and sophisticated auto parts and increased accident frequency and severity.
  • The cost of hospital services increased by 3.4 percent from 2016 to 2017, meaning higher bodily injury costs.
  • Vehicles are more complex than ever. Repairing a taillight broken in an accident may involve replacing an entire portion of a vehicle rather than just the taillight today. This trend affects not only comprehensive and collision claims, but also property damage liability.
  • Prices for motor vehicle bodywork are up by 3.0 percent since last year.
  • Awards in lawsuits are increasing, with a median award of $75,000 in 2014, compared to $70,000 in 2014, the latest year for which figures are available. Awards of $1 million or more accounted for 18 percent of all personal injury awards in 2013 and 2014, up 17 percent from the prior two-year period.
  • Incurred losses and loss-adjustment expenses grew by 7.6 percent in the first three quarters of 2016 versus a rise of 2.7 in the comparable period the previous year.
  • Underwriting expense grew by 2.6 percent.
  • Against this background, insurers’ investment income has dropped because of prolonged low interest rates.

A future post will discuss how RiskProNet members are handling renewals in light of these factors.