Over the past two years, the number and severity of auto insurance claims in the United States have skyrocketed, a trend vividly captured by comprehensive data sets. Yet, opinions on what's driving this surge vary widely. The rise in claim counts and frequency isn't hard to fathom: as the economy thrives, Americans are spending more time behind the wheel. In fact, 2016 marked the fifth consecutive year of increasing vehicle miles traveled (VMT) in the U.S., topping out at a staggering 3.2 trillion miles. This relentless surge in VMT has inevitably led to a corresponding spike in car accidents, captivating attention within the auto insurance sector.
After the financial crisis in 2008, Americans' vehicle miles traveled hit a low point. It wasn't until after 2013, with the economic recovery and declining gas prices, that Americans' vehicle miles traveled began to climb back up and enter a new growth phase.
The increase in accident numbers is also tied to other factors. For instance, as smartphones evolve, distractions from mobile phone use while driving have surged. Additionally, seasonal changes can bring about extreme weather conditions in a short span, impacting road conditions.
As for the severity of accidents, which translates to higher vehicle repair costs, it's also linked to the surge in new car sales. In February, the annualized sales pace of new vehicles in the U.S. was estimated to have reached 17.9 million units. Since newer cars are typically equipped with more expensive parts, the proliferation of new vehicles has also contributed to a rise in auto repair expenses, captivating attention within the auto insurance industry.
According to estimates from Kelley Blue Book (KBB), a prestigious U.S. automotive evaluation firm, the average price of new cars is rising at a rate of 2.5% annually as sales climb, leading to an increase in the overall vehicle population across the American market. SUVs, which tend to have higher average repair costs, are seeing their market share continually expand. Nowadays, all new cars come equipped with pricey high-tech gadgets, a move by automakers aimed at creating a safer driving environment. Ironically, however, these high-tech features have also imposed a significant repair cost burden on vehicle owners.
The U.S. government has mandated that all new cars must come with rearview cameras by 2018 and automatic emergency braking systems by 2020. These government regulations will undoubtedly make such assistive devices standard features in future cars.
Indeed, automotive technology has played a significant role in providing drivers with comprehensive protection. According to projections by the American Automobile Association, advanced driver assistance systems (ADAS) will significantly reduce the number and severity of car accidents in the future. However, the widespread adoption of these assistive devices is still some time away.
At the same time, studies have shown that while assistive devices can mitigate certain risks, they may also lead drivers to let their guard down, thereby introducing other risks—a case of new risks replacing old ones. For example, collision avoidance systems might give drivers the false impression that texting while driving is less dangerous, increasing the likelihood of accidents caused by driver distraction.
According to statistics from the National Safety Council, 40,200 people died in road accidents in the United States in 2016, marking the highest number in nearly a decade. The number of traffic-related deaths in 2016 rose by 6% compared to 2015 and by 14% compared to 2014, representing the largest increase in the United States in the past 50 years.
Today's automotive technology can maximize driver safety in the event of a car accident, but the repair costs for parts can be astonishingly high. Precision sensors are often exposed on the car's surface, such as the bumper and air intake grille. Some devices, even if not damaged in an accident, must be recalibrated during the overall vehicle repair process.
Even the less technologically advanced components in cars aren't cheap. The fierce competition among automakers forces them to not only enhance the robustness of vehicles but also reduce their weight to improve fuel economy. This dual pressure has made the design and manufacturing process of vehicles increasingly complex. In terms of body materials, automakers have taken diverse approaches, with some opting for high-strength steel, while others choose composites, carbon fiber, or aluminum bodies.
As the technological content of cars continues to rise, it's becoming increasingly important for auto insurance companies to understand the risks they're undertaking. Obtaining design parameters from automakers helps insurance companies gain a comprehensive understanding of vehicle structures and price policies more accurately. When accidents occur and claims need to be processed, swift and efficient claims handling can effectively mitigate the negative impacts on both insureds and insurance companies.
As more and more new cars come equipped with high-tech systems, insurance companies can leverage connected vehicle technology to maximize the potential of these systems. For instance, they can use predictive analytics, data-driven algorithms, and threshold filters to trigger the claims process and speed up the entire procedure. Speaking of real-time communication systems for accident losses based on connected vehicle technology, auto insurance companies can utilize them to:
Immediately verify the authenticity of claims and initiate investigation procedures.
Estimate accident losses, dispatch service providers to the scene for inspection and damage assessment, and promptly contact auto repair shops and parts suppliers.
Assess injuries at the accident scene and make timely arrangements for subsequent matters.
Rapidly simulate and recreate the accident scene to analyze and assess fault liability.