From a Company Standpoint
Insurance company automobile underwriting programs contain a number of
classifications that assist insurers in establishing appropriate premiums
based on driving exposures.
Outside Factors
Auto insurance premiums are also affected by factors that are not directly controlled by companies. These include frequency and severity of crashes, auto repair costs, medical and hospital costs, doctor fees, lawsuits and court judgments, insurance fraud, vehicle selection and deductibles.
The Insurance Information Institute (III) estimates that insurer prohibition in its use of generic parts to repair damaged vehicles could add $4–5 billion annually to the cost of auto insurance. III also reports that the pace of medical inflation is up nearly 50% since 1997 while the average jury verdict in vehicular accident cases increased over 80% between 1993–99.
Crash frequency, severity and claims
The combination of accident frequency and severity influences the portion of your auto insurance premium that covers losses. Crash frequency is how many and how often crashes occur. The higher the frequency, the more insurers pay in claims.
In the past two decades (1980-98) there’s been a 17% drop in crash frequency, as measured by property damage (PD) claims. In 1998, 4.09 auto PD claims were filed per 100 insured vehicles. However, the number of bodily injury (BI) claims during the same time period increased by 33%, according to the Insurance Research Council, to 1.17 BI claims per 100 insured cars in 1998. Ohio’s claims per 100 insured cars in 1998 was 1.12 BI claims and 3.97 PD claims.
Accident severity is reflected in the amount paid per accident claim. PD claim costs under auto liability coverage averaged $1,689 in 1990, rising to $2,291 in 1999. Average BI claim payments under auto liability coverage have stabilized in recent years partly due to moderating medical inflation, safer cars and roads, and insurer advances in claims management. 1999’s average BI claim was $9,624.
Recent claim loss changes
Until recently, a car’s make and model was not considered into the equation when determining liability premiums. This is all beginning to change as a result of analyzing company claims data by make and model. One major auto insurer announced premium reductions beginning in 2001 for medical payments coverage as a result of reviewing data on injury claims by make and model. The company recognizes that some newer vehicles reduce the risk of injury to a greater extent than others.
Near the end of 2000, two other major auto insurers announced plans to raise liability rates on certain larger SUVs, pickups and vans, while lowering premiums on others, based on vehicle safety and claims experience. The injury and property damage that bigger vehicles can inflict, especially when the weights of colliding vehicles can vary by a ton or more, can be significant.
Ohio court rulings
State law requires that auto insurance premiums be adequate to cover anticipated losses, many of which insurers are able to calculate; some however cannot. The unpredictable nature of Ohio court rulings can affect what we pay for insurance and the terms and conditions of the policy. According to a 2000 National Association of Insurance Commissioners study, Ohio’s average liability premium rose 10.1% compared to the US average of 1.4% between 1994–98.
Ohio Supreme Court rulings have expanded coverage on occasion. One such case in 1999, Scott-Pontzer v. Liberty Mutual Fire Ins. Company, has resulted in higher auto liability insurance premiums for businesses. The case expanded employer UIM coverage to apply in a crash even though the deceased (Pontzer) was not driving a company-owned vehicle or was not engaged in company business at the time of the fatal crash.
Another ruling announced in late December, 2000, Linko v. Indemnity Insurance Company of North America, is expected to adversely impact most (if not all) auto insurers in Ohio. The case deals with what constitutes an express and knowing rejection of uninsured/underinsured motorists (UM/UIM) coverage. It expands the requirement of what constitutes a valid offer of coverage and likely invalidates most of the current ways UM/UIM coverage rejections are handled by companies.
Competition factor
The most important factor affecting rates from a company standpoint is competition. Ohio has an environment that facilitates competition among its insurers, helping to keep auto insurance premiums well below the national average (see "1998 US Auto Insurance Premiums by State").