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High car insurance rates? Blame smartphones

Posted on Wednesday, February 22, 2017 at 11:06:31 AM

Over the past few years, car insurance rates have been steadily climbing in the U.S.: According to CNBC, policy rate prices rose 6 percent year-over-year in April 2016 - the largest year-over-year increase since October 2003. This follows a 5.1 percent increase in February and March of that year.

What's behind this rise in insurance costs? The simple answer is that drivers are increasingly getting into accidents and insurance providers are paying out in record numbers - cutting into the profitability of even established networks and providers. 

"The number of accidents has gone up," Jim Lynch, chief actuary of the Insurance Information Institute, told CNBC. "At the same time, the size of claims settlements has been rising as well, so the industry is kind of getting hit by a double whammy."

Distracted drivers 
?Yet even with this simple answer, there are still questions: Why now, when cars are designed to be safer than they've ever been and seatbelt usuage is at an all time high, is driving more dangerous and accidents more expensive? The answer is the growing threat of distracted driving.

According to the AAA Foundation for Traffic Safety, 87 percent of drivers engaged in at least one risky or unsafe behavior while behind the wheel within the past month. Drilling into the data, this behavior includes historically unsafe activities like while impaired or sleepy, speeding, not obeying traffic signs or stop lights or not wearing a seat belt. But increasingly, the experts are pointing to the dangers of smartphone and device distraction on the roads.

In 2015, a survey by State Farm found that 29 percent of people admitted to accessing the internet while driving and 36 percent admitted to texting. This is likely to be a relatively conservative estimate of the full extent of the issue, since this research relied on self-reporting and many people may not admit to being on devices even if they do. The message from existing data, however, is clear: drivers find it difficult to fully focus on driving and put their phones away.

"Distracted driving was always there, but it just intensified as more applications for the smartphones became available," Bill Caldwell, executive vice president of property and casualty at Horace Mann insurance, told the Wall Street Journal.

More miles, more expensive and more deadly
This data about device usage while driving should also be taken in context with other changes in driving behaviors and accident rates. ValueWalk points to the way that the the U.S. economic recovery and lower gas prices have more drivers on the road, often driving more miles than in previous years. A larger driver population spending more time in cars would proportionally increase the risk of accidents.

"One of the strongest correlations tends to be between the economy and traffic fatalities," Deborah Hersman, president and CEO of the NSC, told Newsweek. "When the economy is doing well and things are growing, we tend to see more fatalities."

As Hersman alludes to, accidents aren't just happening more frequently: They are increasingly serious - even deadly. The National Safety Council reported that 2015 was the deadliest year for drivers since 2007, with nearly 19,000 people killed as a result of motor vehicle accidents between January and June - a 14 percent increase over the same period last year.

Non-deadly but still "serious" injuries - i.e. requiring some form of medical consultation and intervention - rose 30 percent from the previous year as well. These kinds of accidents pose a greater financial risk to insurance providers, given the similarly rising cost of medical treatment. 

"Motor vehicle insurance always seems to be above the normal cost of inflation," Penny Gusner, a consumer analyst at Insure.com, told CNBC. "The numbers to the payouts are going up. Medical bills seem to be crazy … and the costs especially for bodily injury."

Experts have some hope for the future, pointing to a generational learning curve that may in the end teach new drivers to not focus on their phones while driving. Many are are also talking about the rise of autonomous driving vehicles that may to a varying degree free drivers from having to focus on the road as well.