Auto insurance premiums have been on the rise since April 2016, when a 6% rate hike made it the biggest monthly increase since 2003. While the need for harder conditions in the auto insurance market is overdue, both personal and commercial auto policies are noticing the effects. And due to contributing factors that include the high costs of claims, increasing costs of vehicle repairs and unsafe driving behaviors, policyholders are not likely to see a softer market any time soon.

More Drivers (and Distracted Drivers) Lead to More Accidents

Thanks to low gasoline prices and rising employment rates, more Americans are driving. As a result, there are more accidents, which lead to higher payouts. Higher payouts lead to higher premiums.

The cause of more accidents isn’t entirely because more drivers are on the road—it is because of drivers’ unsafe driving practices. According to the AAA Foundation for Traffic Safety, about 87% of drivers admitted to engaging in at least one risky behavior while behind the wheel in the first quarter of 2017, including using cellphones while driving and not wearing seat belts.

Claim Severity

The size of the average insurance claim—also known as claim severity—has increased as well. The three largest drivers of claim severity include the increase in the costs of medical care, auto repairs and auto parts. According to a recent study by CarMD, the largest repair cost comes from replacing the expensive technology that’s common in newer vehicles, as body shops struggle to afford the special equipment and training required to perform the repairs.

Uninsured Motorists

Most states require you carry auto insurance as a way to cover your own liability and provide compensation to others in the event that you’re responsible for an accident. Despite this, approximately 13% of drivers drive uninsured. According to the Insurance Research Council, uninsured claim payments have risen by 75% over the past 10 years, resulting in a $14 premium increase for every insured individual.

Insurance Fraud

The Insurance Information Institute estimates that insurance fraud costs the United States $32 billion per year. A common form of insurance fraud is when someone cheats the claims process by faking an injury and blaming it on an accident. As a result, insurance companies end up paying claims for injuries that never occurred.

Another common type of insurance fraud is when policyholders lie on their application in an effort to receive low insurance rates—lies that cost insurers $16 billion per year.

Risk Management Techniques for Businesses

One of the best things you can do to control your automobile insurance premiums is implement risk management techniques for controlling the frequency of accidents. Improving your drivers’ performance can make a big difference: A study by the U.S. Department of Transportation revealed that 90% of all collisions were due to driver action, attitude and behavior. Making your drivers safer and purchasing dependable vehicles can affect both frequency and severity of accidents, ultimately lowering your premiums. Some steps to take include the following:

  • Select good drivers. Conduct background checks and request regular motor vehicle (MVRs) driving records. Insurance companies are tightening their underwriting guidelines when it comes to adding drivers to a commercial auto policy. Obtaining MVRs prior to hiring helps ensure the driver meets the companies new underwriting requirements.
  • Provide driver safety training on a regular basis, both at hire and as a refresh, ensuring that both new and seasoned employees are properly prepared.
  • Train employees on reporting a loss immediately after a crash.
  • Monitor drivers to ensure their best performance.

How Can You Save During a Hard Market?

With auto insurance premiums on the rise for the foreseeable future, it’s important to be aware of the steps you can take to save on premiums. Contact us at 608-238-2686 to discuss your options for saving on your auto policy, even during a hard market.

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