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More Accidents, Costlier Claims Prompt Rise in Premiums

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Be prepared for rising premiums on your auto insurance policy as the number of claims from accidents caused by distracted driving booms.

Most major insurers are raising their auto insurance rates due to a sudden escalation in the cost of claims. That’s been driven largely by a surge in crashes that has been blamed on motorists using their smartphones while driving.

In addition to the number of claims jumping, car repairs are more expensive as vehicles have become more high tech.

The scope of the increasing outlay for claims was evident when State Farm Insurance reported a $7 billion loss on its auto insurance portfolio. That announcement came after other companies like Travelers Co., Allstate Corp. and Geico said they were increasing their auto premiums because of higher claims outlays.

“Loss costs throughout the auto-insurance industry have been increasing at an unexpected pace,” Berkshire Hathaway chairman Warren Buffett said in his annual letter to shareholders. Berkshire owns Geico.

The driving force that’s led to the boom in accidents is distracted driving, insurance companies say. A report by the AAA Foundation for Traffic Safety found that about 87% of young drivers had engaged in at least one risky behavior while behind the wheel within the past month of being surveyed.

These dangerous behaviors – which increase crash risk – include texting while driving, red-light running and speeding. This new scourge threatens to wipe out years of steady declines in traffic fatalities. In 2015, U.S. traffic deaths rose to 35,092, an increase of more than 7% and the largest single-year spike in five decades.

From 2005 to 2013, the average cost per paid bodily injury liability claim increased 32%, from $11,738 to $15,506, according to the Insurance Research Council. In 2014 it had reached $16,600, up 7% from the year prior.

Factors leading to rate increases:

  • More accidents. Insurers point in particular to claims related to distracted driving from the use of smartphones.
  • Higher repair costs.
  • Higher costs for replacement parts.
  • Higher medical costs.
  • More vehicles on the road.

Millennials the biggest offenders

The percentage of drivers who reported engaging in speeding, red-light running or texting behind the wheel in the past 30 days includes:

  • Drivers aged 19-24: 88.4%
  • Drivers aged 25-39: 79.2%
  • Drivers aged 40-59: 75.2%
  • Drivers aged 16-18: 69.3%
  • Drivers aged 75+: 69.1%
  • Drivers aged 60-74: 67.3%

Rate increases vary among insurers. Some have anticipated the rise in accidents and costs and are slowly lifting rates. But others have reacted late and are now increasing their premiums to account for the increases. The average rate of increase has been around 1% to 5%.


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