A rise in auto accidents surprised car insurers in the first half of 2015, which will translate to higher premiums for drivers.
Industry executives say a 14% surge in fatal accidents tracked by the National Safety Council was due to a combination of factors, but insiders say the most prominent cause is cell phone usage.
The upsurge after years of declines was an unexpected development for two of the three largest car insurers, Geico and Allstate, and both are raising premiums to offset the expenses associated with the new accident claims. Allstate this year has gotten approval from dozens of states to boost rates by an average of 3.9%, according to financial filings, and Geico is implementing premium rate increases as needed to offset jumps in the frequency and severity of customer auto claims.
Analysts say drivers could be facing a prolonged period of rising premiums as a result. In an Aug. 26 report, Nomura stock analyst Clifford Gallant noted that while some insurers “are already reacting aggressively with rate increases, we expect that multiple rounds may be necessary just to catch current trend.”
“More miles driven, more cars on the road, more accidents,” said Allstate Chief Executive Tom Wilson in an interview.
Fatal crashes had been falling in the past decade because of more-frequent use of seat belts, tougher enforcement of drunken-driving laws and a proliferation of newer, safer cars with stability-control systems and air bags. Some of those trends contributed to a decline in car-insurance costs for consumers—the average annual expenditure for auto insurance in the U.S. crept down from $1,076 in 2003 to $846 in 2011, according to inflation-adjusted data from the National Association of Insurance Commissioners.
The average premium has edged up 2% since then to an estimated $967, according to trade group Insurance Information Institute. The increase is in part because Americans have gotten comfortable buying new cars again, and those cars are more expensive—and more costly to insure—than the ones they replaced.
Roads turned more dangerous this year as travel increased 3.5% to a record 1.54 trillion miles through June, according to the Federal Highway Administration. Although population growth contributes to increased mileage, the number of miles Americans drove in recent years barely budged from a peak in 2007. That’s despite the population growing by 6.6% during the same period, according to a study by the Insurance Information Institute.
Meanwhile, gas prices plunged to their lowest level since 2010, according to figures from the Federal Highway Administration and the American Automobile Association. In addition, the unemployment rate has fallen to 5.1%, meaning more people are using their cars to get to work.
Motor-vehicle deaths are now expected to exceed 40,000 for the first time since 2007, according to NSC. Distracted driving, especially the use of smartphones to talk, text, play games, or even watch videos while on the road, could be an overlooked contributor. One in four car crashes involves cellphone use, according to NSC estimates, even though most states have laws banning text-messaging and hand-held cellphone use while driving.
“If cars are better—and they clearly are—drivers must be worse”
…said Warren Buffett, CEO of Berkshire Hathaway. Given that mileage is up only around 3%, Mr. Buffett said he found it hard to draw any other inference from the data than distracted driving to explain the much larger jump in fatalities this year.