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Rising Rate of Auto Accidents Causes Huge Losses for Insurers

by Precise Leads

March 13, 2017

As connected devices continue to distract younger drivers, the national rate of auto fatalities is on the rise — and this trend is hurting the auto insurance industry.

For the first time since 2007, the annual sum of motor vehicle fatalities exceeded 40,000. According to the National Safety Council, 40,200 auto crash deaths occurred in 2016, a 6% rise over 2015. The NSC also reported that the estimated annual mileage death rate stood at 1.25 fatalities per 100 vehicle miles traveled, an increase of 3% from 2015.

The 2016 total follows a disturbing trend of steadily increasing rates of auto fatalities, and auto insurers are paying the price for this unfortunate phenomenon. State Farm, the nation’s largest auto insurer, reported a $7 billion underwriting loss for its auto insurance lines in 2016, up from a loss of $4.4 billion in 2015.

So, what’s causing this alarming spike in the rate of vehicular fatalities?

More Cars, More Distracted Drivers

This increase in auto-related deaths has been linked to several factors, but the most obvious one is the fact that more people are driving now than they were in previous years. A strong economy means that more Americans are commuting to work, and low gas prices makes driving a cheap alternative to other options. The Federal Highway Administration reports that Americans drove 3.15 trillion miles in 2016, the most since 2007 and an increase of 3.5% from 2015. As the number of cars on the road increases, so does the potential for accidents.

And after those drivers rev their engines, they’re easily distracted by their smartphones and other touchscreen devices in their cars. Personal injury law firm Edgar Synder & Associates estimates that some 660,000 drivers talk or text while steering their cars, a habit that divides the driver’s attention away from where it should be — on the road.

PropertyCasualty360 notes that millennial drivers in particular are more likely to speed, run red lights, and text while driving. Those tendencies could lead younger, inexperienced drivers into accidents at a higher rate than their elders.

What This Means for Insurers and Agents

As the State Farm underwriting loss indicates, higher quantities of car accidents can significantly affect the bottom line for auto insurers. Even if there’s no fatality, repair costs have skyrocketed as auto systems become more complex. Medical expenses to treat auto-crash-related injuries such as spinal cord damage have also surged, further contributing to premium hikes.

Motor vehicle injuries that required medical attention reached 4.6 million in 2016, up 7% from 2015, according to the NSC. All told, motor-vehicle deaths, injuries, and property damage resulted in an estimated total cost of $432.5 billion in 2016, an increase of 12% from the previous year.

In order to lessen injuries and fatalities from auto accidents, insurance agents should stress the dangers of distracted driving when meeting with clients and prospects. For instance, a Chicago Tribune article noted that the NSC instructed companies to prohibit employees from using their cellphones while driving during work hours, and more than 460 employers have instituted the ban so far. Your clients can also benefit from this practice — emphasize that their next phone call or Facebook status update can always wait until they’re in a parking lot.

Finally, premiums are typically set on the basis of a driver’s age, gender, occupation, and educational level, but this model might soon be on the way out. New technologies in the field of telematics enable insurers to monitor a driver’s actual driving style and determine premium rates accordingly. If you think your prospects might be interested in making the switch, this could be a pragmatic path forward in the context of increasingly digitized auto technologies.

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