The Rising Cost of Personal Auto Insurance: A Closer Look at Claim Severity and Frequency

Declining Claim Frequency, Increasing Payouts

Despite a notable decrease in the frequency of personal auto insurance claims from 2002 to 2022, the average payout per insured vehicle has seen a steady increase. This trend, highlighted by the Insurance Research Council (IRC), indicates that while fewer accidents are occurring, the severity of those that do occur is on the rise. For instance, property damage liability and bodily injury liability claims both saw a more than 2 percent annualized decline in frequency, yet the average payout per insured vehicle increased by over 2 percent for each type of claim.

The Impact of COVID-19 on Insurance Costs

The COVID-19 pandemic significantly altered the landscape of personal auto insurance. Insurers returned $14 billion in premiums to consumers due to reduced driving, yet risky driving behaviors such as speeding and distracted driving increased, leading to higher traffic fatalities and more severe claims. By 2021 and 2022, as traffic levels returned to normal, claim severity worsened, contributing to a 15-year high in traffic fatalities. This surge in claim severity is a critical factor driving up insurance costs for consumers.

State Variations and Future Challenges

Insurance costs vary significantly from state to state, influenced by factors such as traffic conditions, medical prices, and insurance regulations. For example, Florida's combined injury average loss cost is over five times that of North Dakota. As people continue to exhibit risky driving behaviors and long-term pressures like heavy medical utilization and claim abuse persist, the claim environment is expected to remain challenging. This ongoing trend underscores the need for consumers to stay informed about their insurance options and driving habits to mitigate rising costs.