Automobile insurance rates

Car driverThe size of claims — which in industry lingo is called "claims severity" — is trending higher and affecting several auto insurance companies. Rising costs for medical care and auto repair are big drivers of increasing claims severity. The increasing price of auto parts contributes as well.

But critically, there are more personal auto claims as a result of Americans driving more miles. That trend, which is closely watched by industry analysts, can hurt the profitability of the insurance companies.

"If you look at companies like Allstate and Geico, last year in particular they reported much higher (personal claims) frequency than they had expected, and that eroded their profitability, " said Meyer Shields, a stock analyst at investment bank Keefe, Bruyette & Woods. "They are slowly building that back now, really through just higher insurance rates."

Shields added that auto insurers Progressive and National General also saw an uptick in claims frequency but "seemed to anticipate it better and were able to adjust their rates to be able to absorb" it.

"Motor vehicle insurance always seems to be above the normal cost of inflation. The numbers to the payouts are going up. Medical bills seem to be crazy … and the costs especially for bodily injury."

The federal government last week released its auto insurance-related Consumer Price Index (CPI) monthly data — a proxy for policy rate activity — which showed prices rose 6 percent year-over-year in April. They were up 5.1 percent in February and March. April represented the largest year-over-year increase since October 2003, when motor vehicle insurance prices rose 7.2 percent.

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

A threat from autonomous vehicles?

That said, future automobile safety improvements and the adoption of autonomous vehicles may reduce injuries and save lives, too. But vehicles that drive themselves may undercut the car insurance carriers.

A report last year from KPMG suggests autonomous vehicles being developed today by Google and others "may bring about the most significant change to the automobile insurance industry since its inception." It predicts accident frequency per vehicle could drop 80 percent by 2040, when "the car stock will likely be replaced by or retrofitted with autonomous technology." Also, it suggests that within 25 years, "the personal automobile insurance sector could shrink to less than 40 percent of its current size."

"Insurers are well aware of emerging auto technology and the potential changes that could result in the insurance industry, " said Lynch, the insurance trade group official. "The changes will be gradual and insurers should be able to manage this change."

For now, however, Lynch said personal car insurance carriers are likely to increase rates roughly "between 5 and 10 percent. The vast majority of them have been seeking an increase over the past year or two."

One of the biggest single rate increases so far this year among the major personal auto insurers was Allstate's average 25-percent rate hike, effective this month in the state of Georgia. In explaining the rise, Allstate said traffic fatalities increased 21 percent in Georgia in 2015, the first annual increase after a decade of decreases. What's more, the number of miles driven on Georgia roads and highways grew well above the national average.

Meghan Nash | Getty Images

"We adjust rates very carefully to charge properly for the risk we assume and ensure our ability to help protect customers from life's uncertainties, " Allstate said in a written statement. "This particular rate filing applies to one of Allstate's three underwriting companies in GA and represents less than half our auto insurance business in the state."

In California, several major auto insurers also have requested or been approved for rate hikes this year, with most averaging roughly 7 percent. Also, premium increases of 10 percent or more have been going into effect in Florida in the past year.

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