There will come a time in the not too distant future when auto insurance rates will drop significantly.  Autonomous vehicles will make our roads safer by decreasing, and maybe one day eliminating, car accidents.  In the meantime, we are being faced with a different reality of more accidents and higher auto insurance industry rates.  Why is this happening?

Auto insurers have been fiercely and increasingly competitive over the past couple of decades and have been driving down insurance rates.  And due to a number of factors, insurance companies were able to do this profitably for many years.  Until they couldn’t.

Here’s the story behind rising auto insurance rates.  You have to start with how insurance companies calculate rates.  Insurance companies project what they will be paying in claims and calculate what they need to charge in rate by looking at several key things.

Insurance companies rely heavily on their past experience to determine what to expect in the future.  Key metrics that insurance companies review include usage, incidence rate, and severity rate.  Ideally, when an insurance company misses accurate estimates in any of these areas, they make up for it in another measure and maintain profitability.  If insurance companies underestimate all of the key metrics, or fail to charge the necessary rate, then they lose money.  If this happens for a single year, insurance companies swallow their losses and move on.  If it happens for many years, it becomes a problem that needs to be addressed.  Insurance companies, like any other company, have to make a profit or they go out of business.

The first key metric is usage.  Usage is simply the quantity of miles that are being driven.  Simply put, more miles driven equates to a higher opportunity for accidents.  We have been recovering from the 2007 recession and the last few years have been good for the consumer.  Credit has been readily available.  New car sales have been on the rise.  Fracking large US oil deposits have driven gas prices down.  Subsequently, we’re driving more.  According to the NHTSA, miles driven have increased from 2.967 to 3.095 trillion miles from 2010 to 2015.  This increased usage came on the heels of the recession when miles driven were decreasing.

The next key metric is incidence rate.  Incidence rate is how often we have accidents as a percentage of miles driven.  You would think that with increased safety technology being built into new vehicles such as brake assist, forward collision warning, automatic emergency braking, pedestrian detection, adaptive cruise control, blind spot warning and lane departure warning that accident rates would be on the decline.  You’d be wrong.  The injury rate per 100 million vehicle miles traveled rose from 77 to 79 injuries in just 1 year!  Why would the accident injury rate increase at the same time as increased safety equipment?  Smart phones.  It is reported than distracted driving is involved in between 1 in 4 and 1 and 5 accidents.  This author believes that the distracted driving rate is under-reported, as many distracted driving accidents are not reported as such.  Continued increases in technology combined with increased law enforcement and public awareness will eventually change this trend.  In the meantime, accident rates are up.

The final key metric is severity rate.  Severity rate is the average cost of an accident for property damage and personal injury.  If the average accident costs more, then we have a higher severity rate.  As reported in Best’s Review, October 2017, “vehicles are increasingly more complicated to repair, highway speeds have been raised in many jurisdictions, and medical costs and litigation expenses are also rising.”  Severity rate has been rising.

The bottom line is that for the past few years, anything that could go wrong for auto insurers has gone wrong and the industry is working hard to get their ratios in line by applying underwriting discipline and taking price increases (all the while trying to maintain competitive position).  Rates have been going up, but not as quickly as they need to, which means we can expect further increases until usage, frequency, and severity begin trending downwards.

But just because the industry is taking rate increases, does not mean you have to pay more.  To ensure that you are receiving the right coverages, at the best price, the best thing you can do is give us a call.

If you’re already insured with us, we’ll conduct an on your side review.   We have multiple plans and during the review, we will make sure that you are placed in the best rate plan for you.  Discount plans change, too, and we will make sure that you have all of the newest discount plans.  We will explain your coverages and our recommendations so that you have the right coverages and aren’t paying for insurance that you don’t need.

If you’re not already insured with us, we will make coverage recommendations and stack your current coverages and costs against what we can provide you so that you may make an educated insurance decision.  We will also make sure that you receive all of the discounts available to you.

Wishing You Much Financial Success,

Richard Braun


The Braun Agency’s mission is to help you get from where you are to where you want to be financially by planning, achieving your plan and protecting your plan from unexpected events.  In the process, our goal is to deliver insurance services in a manner that exceeds your expectations.  See what The Braun Agency can do for you today. Give us a call at 757-452-4563 to speak with one of the licensed, professional members of our team or request a contact here. The Braun Agency. We’re on YOUR side. 757-INSURANCE.