Insurance Research Council: Auto Claims Frequency Rising Again

After several years of decreasing automobile claims frequency, the Insurance Research Council has found that frequency is once again on the rise. The council reports the number of claims is increasing across the country, particularly personal injury protection claims in three of the largest no-fault states, Florida, Michigan and New York.

Claim severity has been climbing for several years, but the drop in claim frequency resulted in relatively stable injury claim costs per insured vehicle, the council said. That's changing, however, with both claim severity and frequency rising simultaneously.

In 2010, bodily injury liability claim frequency didn't decline for the first time since 1994.

For PIP claims, however, there's been an 18% increase in costs from 2008 to 2010. Much of the increase has been concentrated in the three no-fault states, the council said.

In Florida, the average PIP claim cost per vehicle shot up 62% from 2008 to 2010. No-fault claim frequency in Florida rose 32%, David Corum, vice president of the Insurance Research Council, told Best's News Service.

"That's shocking," he said. "With a very substantial increase in claim severity at the same time, they magnify each other."

In Michigan, PIP costs have been rising rapidly for several years, going up more than 120% over the past 10 years.

And in New York, PIP claim costs have been going up and down because of suspected claim abuse in New York City, the council said.

For insurers, the issue is severity, said Alex Hageli, director of personal lines policy at the Property Casualty Insurers Association of America.

"Severity has been increasing at a rate that's higher than what it should be given the frequency we're seeing," he said.

Bodily injury liability claims have risen 50% during the past 20 years, and 22% in the past five years, he said.

PIP claims have gone up 139% in the past 20 years, 31% during the past five years.

No-fault systems that are set up to allow claims to be paid regardless of who is at fault and without having to go through the courts are leading the cost increases, particularly in Florida, Michigan and New York, Corum said.

That's probably a result of two things. First, no-fault systems and PIP benefits provide an incentive for medical clinics to bill auto insurers and dip into the pot of money even when a medical test may not be absolutely necessary.

Second, some people are committing outright fraud, particularly in Florida and New York, and they get more efficient and better at it all the time, Hageli said.

The adjusted loss ratio for the top five insurers in New York in 2010 was 70%, up from 53% from 2006, according to BestLink. In Michigan, the adjusted loss ratio was 124% in 2010, a steep rise from 68% in 2006. And in Florida, it was 74% in 2010, up from 62% in 2006.

Insurers have been trying to change no-fault systems.

In November, the Insurance Research Council released a report that found no-fault abuse in New York City adds more than $200 million each year to the premiums paid by the state's drivers. Auto insurance claims for medical expenses, lost wages and other expenses related to injuries from auto accidents in the New York City area have risen 70% over the past decade, surpassing the 49% increase in medical care inflation over the same period (Best's News Service, Nov. 23, 2011).

Meanwhile, anti-fraud provisions passed by the legislature in 2002, 2003 and 2007 have failed to curb PIP costs, due to loopholes and abuse of the system (Best's News Service, Nov. 28, 2011).

In Michigan, which currently has unlimited PIP medical benefits, legislation has been introduced to change the system (Best's News Service, Sept. 22, 2011).

The top five private passenger auto writers in Florida in 2010 by market share, according to BestLink, were State Farm Group, with 21%; Berkshire Hathaway Insurance Group, with 16%; Allstate Insurance Group, with 14%; Progressive Insurance Group, with 11%; and USAA Group, with 6%.

The top five writers of private passenger auto in New York State in 2010 were Berkshire Hathaway, with 24% market share; Allstate, with 19%; State Farm, with 12%; Liberty Mutual, with 6%; and Progressive, with 5.8%.

The companies with the largest market share in the Michigan private passenger auto market in 2010 were State Farm Group, with 19%; Auto Club Group, with 18%; Auto-Owners Insurance Group, with 10%; Progressive Insurance Group, with 8%; and the Hanover Insurance Group Property & Casualty Cos., with 7%.

(By Marie Suszynski)