Will Car Insurance Premiums Rise In Arizona for 2017?

Insurance companies are feeling the pressure of increased miles driven, rising property damage frequency and rising severity in the types of collisions. The number of miles driven in 2015 set new records and accident frequency is at a 10-year high. These pressures are cutting into insurers profits and ultimately we the public will end up paying the price.

Auto claims frequency has returned pre-recession levels, and severity has reached record highs which is forcing many insurers to raise premiums, and here is why:

Blame the recovering economy

The joblessness resulting from the recession of 2008 saw an unprecedented decline in miles driven until that rebounded and reversed the trend by 2012. Today, an improving economy and falling gas prices have more people driving more often.

Miles driven set new records in 2015, and seasonally adjusted mileage continues to increase. Americans drove a combined 3.2 trillion miles during the 12 months leading up to July 2016, according to the U.S. Federal Highway Administration.

In addition to mileage increases, records are being set in accident frequency that is currently at a 10-year high with large spikes in frequency coming from 2014 and 2015

During the recession, fewer new cars were purchased which led to aging of the average car on American roads. The average age of light vehicles in the United States increased to 11.4 years at the end of 2012. Fewer new cars meant lower costs for insurers.

When new cars sales rebounded from 2012 to 2015 the severity started setting new records because repairing modern safety technology tends to cost more. Since 2007, the average annual increase in collision severity is 1.68 percent as compared to the average annual severity for collision increased only 0.27 percent from 2007-2011.

Blame it on a sudden increase in bodily injury claims severity.

Bodily injury claims are on the rise, but it is difficult to determine exactly why. For example, suv’s and crossovers are out selling all other vehicle types. So when the bumpers of sport utility vehicles impact passenger cars, the height difference can increase the risk of injuring passengers. However, improved safety features of modern vehicles have helped reduce these occurrences. The frequency of bodily injury claims has been relatively flat both before and after the recession, but severity is still increasing. Bodily injury claims have always been major cost for insurers and the growing frequency and severity of physical damage claims is not helping.

Blame it on a reversal of positive trends.
Until 2015, when the trend started reversing, the number of fatalities per 100 million miles driven had been declining steeply since the mid-1930s, from a figure of 15 oer 100 miles driven to just one per 100 miles driven. However last year this trend reversed, and the National Safety Council reported that road fatalities jumped 8 percent between 2014 and 2015, the largest increase in 50 years.

This would lead most people to wonder why now with the safest cars ever on the roads today, why would this trend suddenly reverse on itself after 50 years of steady declines?

Experts have yet to agree on why this is happening, but they agree that possible contributing factors include:

Too many cars on the road: Miles driven are up and so are accidents. More driving also puts more vehicles in proximity to one another, producing a further multiplier effect.

Distracted driving: Perhaps we are starting to see the effects of distracted driving. With the number of smart devices and the ease of texting and even operation of connected devices creates distractions behind the wheel that may be increasing frequency and severity for insurers.

Defective vehicles: It seems like every day there is a major recall affecting every single brand on the road. Despite the rebound in auto sales, there is still a healthy mix of new and old vehicles on the road. Newer cars tend to drive up property damage claim severity, while older cars tend to get totaled out. Total losses have more than doubled over the past five years.

As you can see Insurers are facing several shifting trends that remain a puzzle and a challenge to insurers. Premiums for personal auto insurers grew 5.5 percent in 2015, but that has not been enough to cover the costs of rising losses. With new car purchases come new car insurance premiums and you can bet that they will continue to increase until these trends start to once again stabilize, or until autonomous driving cars eliminate insurance claims altogether.

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