B.and Max Dorfman, Researcher, Triple-I

The average payout of claims per insured personal vehicle increased between 2002 and 2022, with higher insurer payouts more than offsetting declines in frequency, according to new research from the Insurance Research Council (IRC) – as Triple-I, a subsidiary of The Institutes.

“During the first half of the study period, the combination of decreasing frequency and increasing severity left insurers’ average cost of losses relatively unchanged,” said IRC president and Triple-I insurance director Dale Porfilio. “However, as claim frequency leveled off and claim severity accelerated, the average payment per insured vehicle for most coverages began to rise steadily through the fall of 2020 due to COVID-19. However, by 2022, the average loss costs for almost all hedges had surpassed the 2019 level.

The frequency of property damage liability and bodily injury liability claims fell more than 2 percent annualized over the period 2002 to 2022, while the average payment per insured vehicle increased more than 2 percent for both types of claims during the same period.

Claim frequency, which declined sharply during the coronavirus pandemic, remained below pre-pandemic levels in 2022, while claim severity soared and average cost of loss also increased. The accelerating growth in claims costs is a key driver of rising insurance costs for consumers.

Costs also varied widely from state to state. The combined average cost of loss from injury in the highest state, Florida, was more than five times the cost of loss in the lowest state, North Dakota. Traffic conditions, medical prices, policy limits and other insurance regulations, litigation, fraud, and the design of the injury tort or no-fault environment all influence these costs.

The pandemic reversed the costs of insured vehicles

During the height of COVID-19, insurers returned $14 billion in premiums to consumers through discounts, refunds and dividends due to fewer drivers on the road. However, risky driving behaviors such as speeding and distracted driving seemed to worsen while the roads were calmer. Consequently, deaths from traffic accidents increased in 2020, despite the large drop in miles driven, and the average severity of auto claims increased.

In 2021 and 2022, vehicle traffic resumed and the severity of claims worsened as risky driving behaviors continued. As a result, deaths from traffic accidents increased in 2021, reaching the highest levels in 15 years. This also marked the highest percentage increase since the current reporting system began in 1975.

Although some of these pressures may level off, the IRC report notes that the claims environment is likely to remain challenging as people continue to exhibit risky driving behaviour. In addition, longer-term pressures on the severity of injury claims from cost drivers, such as intensive medical utilization, cost shifting, and claims abuse, continue to increase the costs of insured vehicles.

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