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5 Forces Driving Auto Insurance Costs

Over the past decade, auto insurance rates have increased steadily, well exceeding the rate of inflation over the same period. But what's driving this upward trend? Here's 5 factors that have significantly impacted the rates for Auto Insurance.



1. Bodily Injury Loss Costs

Over the last decade, the cost of bodily injury claims has surged, outpacing inflation significantly. In the span from 2018 to 2022, there's been a substantial 40% increase in severity despite a decrease in the frequency of accidents. This surge is fueled by various factors such as a rise in fatal accidents, higher legal settlements, and the relentless climb of medical expenses. Projections indicate a continuous rise in medical costs, expected to hit 7% in 2024, up from 6.0% in 2023 and 5.5% in 2022.


2. Attorney Involvement

Legal representation in auto accident cases has surged, leading to higher claim costs due to increased legal procedures and medical treatments. Implementing a comprehensive fleet management program can mitigate exposure in this area.


3. Distractions and Impairment

From in-car infotainment systems to mobile phones and driving under the influence, distractions while driving pose considerable risks. A survey indicates that 30% of companies have reported employee involvement in accidents due to mobile distractions. Preventable crash-related deaths have surged by 18% compared to pre-pandemic levels.


4. Inexperienced Drivers

Shortages due to resignations and retirements have led to a lacking of experienced commercial drivers. This situation increases the likelihood of less seasoned replacement drivers, particularly those navigating new vehicles and routes, contributing to a higher accident rate.


5. Vehicle Repair and Replacement Costs

Modern vehicles are pricier to insure and repair due to advanced materials and technology aimed at enhancing safety and comfort. Consequently, accidents involving these vehicles result in substantial costs. Labor shortages and inflation further exacerbate the situation. Moreover, an almost 24% rise in motor vehicle parts and equipment costs since September 2019 has directly impacted claims' financial burden. Additionally, although there's been a recent softening, used car prices remain elevated, up by nearly 47.9% in 2023 compared to the average between 2015 and 2019. This spike significantly impacts total loss claim expenses. The increasing incidents of auto theft also add to the escalating claim costs.


The landscape of commercial auto insurance costs is undergoing a significant transformation driven by multiple intertwined factors. The surge in bodily injury expenses, legal involvement, risks associated with distracted driving, a shortage of experienced drivers, and the escalating costs of vehicle repair and replacement collectively contribute to the upward trajectory of insurance premiums. Navigating this landscape requires a proactive approach, leveraging strategic measures in fleet management, safety policies, and prudent hiring practices to mitigate these escalating expenses and ensure a more secure and cost-effective operation within the commercial auto sector

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