Auto Insurers Mystified by Fewer Accident Claims

The major auto insurers are mystified by the fact that even with more cars on the road today than ever, accident claims are plummeting:

American drivers are reporting fewer crashes to their insurance companies than ever before, and nobody knows precisely why.

Fewer claims mean record profits for auto insurers like Allstate Corp. and State Farm Insurance Cos. The unprecedented decline in auto claims — a four-year, 15% drop — has allowed the insurers to reap huge earnings from underwriting, without raising premiums.

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But behind the profit boon lies a mystery: Insurers can't explain the drop in auto claims. And while theories abound, the lack of a clear, identifiable reason is unsettling in an industry that relies on sophisticated statistical modeling to predict its claim payouts. Those predictions are used to set premium rates, to decide whom to insure and to provide earnings guidance to Wall Street.

With no explanation for the drop in claims, insurers can't tell if the trend will continue, leaving many at a loss.

"We can't explain it, therefore, we can't predict it," Glenn Renwick, CEO of Ohio-based Progressive Corp., one of Allstate's toughest competitors, told investors in June.

But Mr. Renwick said there's no mistaking the buzz. Industry-wide, auto-collision claims fell from 6.91 claims per 100 insured vehicles in 2001 to 5.91 claims per 100 insured vehicles in 2005, according to the Property Casualty Insurers Assn. of America.

I think some of it has to do with a story I had a little while ago which described how faster speed limits have resulted in fewer crashes. I wonder, though, if some of the reduction in claims is due to an increased number of uninsured motorists who can't file a claim when they have a wreck.

Regardless of the cause, don't look for any rate reductions anytime soon. I'm sure the auto insurers will want to have many years of lower claims before they finally adjust their rate tables.