Insurance companies use actuarial science to analyze a lot of data to help them assess the probability of a future loss and the projected claims costs for any given policyholder. Before setting the rates, regulators in each state require carriers to document how the factors being used directly correlate to the rates the carrier seeks to charge. Whether consumers agree with the factors or not, most understand the more common factors used by carriers to determine the cost of auto insurance, including:
- Age, gender, and marital status
- Where you live, and how many miles you drive to and from work
- Your credit rating
- Your driving record and claim history
Meanwhile, analyzing prior claims results to determine the cost to offset future losses is not always reliable. When forecasts prove inaccurate and the cost to pay all claims outpace the premiums collected, carriers must document the reasons to support their request for increased rates when filing their new rates with state regulators. Insurance carriers have experienced a number of factors that have contributed to more frequent claims and a higher cost to settle many claims, leading to higher auto insurance premiums for many consumers. Following are those factors:
- More miles driven. Vehicle miles traveled increased by 3.5% in 2015, the largest annual increase in nearly 25 years, and an additional growth of 3.1% occurred in 2016.
- More drivers driving. The number of people employed has increased significantly. Simply put, more cars and drivers on the road leads to a higher probability of accidents.
- Increase in accident severity. The average cost per paid bodily injury claim increased 32.1% from 2005 to 2013, and medical costs are on the rise.
- Increase in auto repair costs. The U.S. set a new car sales record in 2015, and new cars have more advanced technology and are more expensive to repair.
- Increase in traffic fatalities: deaths on the roadways increased 8% in 2015 to the highest level since 2005.