Smartphones have become one of the greatest risks for auto insurers. Analysts blame mobile devices for a sharp increase in motor vehicle accidents in the United States.
America’s motor vehicle accident rate increased by 5% between 2011 and 2016, the National Council on Compensation Insurance (NCCI) calculated. The volume of workers’ compensation claims fell by 17.6% during the same period.
Smartphones are the likely cause, around 27% of US motor accidents involved phone use. Smartphone caused crashes are 12% more likely to involve a fatality, the NCCI claimed.
Vehicle accident risk is exploding
Disturbingly, those statistics might be an undercount. “There is strong evidence to support that underreporting of driver cell phone use in crashes is resulting in a substantial underestimation of the magnitude of the public safety threat,” the National Safety Council declared.
The frequency of auto accidents and the number of auto accident claims have increased since 2011. Not coincidently, the percentage of smartphone owners rose from 27% to 81% between 2016.
Financial risks to auto insurers are increasing because smartphone-related accidents cause more injuries. Auto accident claims are 80% to 100% higher than average compensation claims because of severe injuries.
Smartphones are increasing insurers’ costs
Vehicle accidents made up 28% of claims over $500,000 (£391,973), the NCCI discovered. In contrast, claims over $500,000 accounted for just 5% of all accidents.
American auto accidents are more expensive because the nation lacks National Health Insurance. Therefore, private insurers must cover all the medical costs of most accidents.
The fatality rate from auto accidents is 12 times greater than other accidents. Moreover, a vehicle accident is more likely to result in a costly death claim or lawsuit.
The NCCI expects the growing smartphone risk to increase the cost of insuring individuals in some professions. Accident risks for lorry drivers, cab drivers, salespeople, and delivery drivers increased because of smartphones.
The NCCI’s findings indicate that risks from vehicle accidents will increase for the foreseeable future. Disturbingly other data corroborates the NCCI’s findings.
Road traffic accidents have exploded worldwide in recent years, the Population Reference Bureau (PRB) calculated. Traffic accidents are now the leading cause of accidental death and a significant cause of ill-health.
Vehicle accidents cause 1.2 million deaths and 50 million injuries globally each year, the PRB estimated. Disturbingly, those figures will get far worse.
“And if present trends continue, road traffic injuries are predicted to be the third-leading contributor to the global burden of disease and injury by 2020,” the PRB warned. Unfortunately, the PRB did not include smartphones in its calculations.
Traffic fatalities in the United States increased by 5.6% between 2015 and 2016, the National High Traffic Safety Administration (NHTSA) discovered. Interestingly, the NHTSA blamed reckless behaviour, such as drunkenness, speeding, and lack of seat-belt use, rather than smartphones for the increase.
The number of distracted deaths decreased by 2.2% during 2016, NHTSA data indicates. Therefore, the smartphone danger might be exaggerated.
Future of traffic accident risk
Vehicle accident risks and costs to insurers will increase for the foreseeable future. Technologies like smartphones are magnifying the risks by increasing the distractions available to drivers.
Insurers will pay more traffic claims and those claims are likely to be greater in coming years. Consequently, many insurers will reduce their exposure to traffic accidents by exiting that business. Other insurers will trim risks by offering specialized auto insurance and leaving specific markets.
Higher-accident risks will be problematic for American auto insurers. The largest US vehicle insurers, such as GEICO, use a discount marketing model based on low rates. Increased risks might make such rates unprofitable.
The mitigation of smartphone risks will be difficult for insurers. Solutions like cell-phone blocking in vehicles will be unpopular and hard to implement. Enforcement of laws against texting and driving is difficult. Monitoring policyholders’ in-car phone usage would be difficult and potentially illegal.
Ironically, technology in the form of autonomous vehicles is the most promising solution. Unfortunately, widespread adoption of self-driving vehicle technology is probably several years off.
Therefore, insurers should expect dramatic increases in vehicle-claims and pay-outs for the foreseeable future. Auto insurance may no longer be the lucrative segment it once was.