Shouldn’t premiums for car insurance be plummeting with all that extra safety equipment that we’re paying for on new cars? ABS, multiple airbags, stability control, lane-departure warning, front-collision avoidance and all the other new features are engineered to help prevent accidents or reduce the number and severity of injuries when accidents do occur, right? So, why, on average, aren’t premiums going down?
Good question. At first glance, it looks as though we’re not getting much bang for our buck on all that car-safety investment. Looking more closely, though, all that safety gear is actually paying off. The culprit, however, is runaway medical expenses. The number of injury claims has been trending ever downward, but the per-claim cost has been escalating, according to the Insurance Research Council.
Insuring Against Injury Claims
If you have car insurance (and you should), a big chunk of your premium is for liability coverage. It addresses claims filed by people injured, or for people killed, in an accident at which you are at fault. You may also have Personal Injury Protection (PIP) coverage, which covers you and your passengers in an accident caused by an uninsured driver.
By the Numbers
The Insurance Research Council’s “Trends in Auto Injury Claims” 2015 Edition is a study of long-term auto-injury claims across the country and by state. Using statistics gathered from passenger auto-insurance claim data, Trends summarizes the frequency and severity of insurance claims arising from fatal and injury accidents.
There are lots of zeros and decimal points, but the key takeaway from last year’s report is that from 2005 to 2013, the number of bodily injury liability claims nationwide fell by 14.5 percent. That’s our investment in safety equipment paying off. However, over the same period the average cost of each claim increased by 32.1 percent, or from $11,738 per claim to $15,506.
PIP claims over the report’s 8-year period declined at a rate of 15.6 percent, but the cost of those claims rose a whopping 38.2 percent, or from $5,802 to $8,017.
The Key to Insurance
Insurance is nothing more than spreading risk and cost over a large group. Lower risk, cost or both, and average premiums decrease; raise risk, cost or both, and premiums increase. In this case, risk has decreased; but cost has increased at a much steeper rate, overwhelming the savings gained by fewer and less severe accidents.
What it Means to You
You and yours are less likely to be injured in an accident, but if you are, escalating medical costs mean a much larger claim against your insurance. This is not a formula for decreasing premiums, and probably won’t change much in the near future.