By Autumn Cafiero Giusti
Improved vehicle safety and licensing laws are making cars and roads a lot safer than they used to be. But despite these improvements, a new report finds that injury claim costs are going up anyway.
According to an October study by the Insurance Research Council, auto injury claim costs per insured vehicle have continued to increase across the United States for the better part of the last decade. And even though things like improved vehicle designs, better safety technology and graduated licensing laws have made long-term reductions in highway injuries and fatalities, these and other safety factors have not been enough to offset substantial increases in the cost of injury claims.
“The relentless increase in auto injury claim severity has prevented consumers from realizing the full financial benefits of enhanced vehicle and road safety,” says
Elizabeth Sprinkel, senior vice president of the IRC.
From 2005 to 2013, the frequency of bodily injury liability claims countrywide fell 14.5 percent, from 0.94 paid claim per 100 insured vehicles to 0.81 paid claim. However, over the same period, the average cost per paid bodily injury liability claim increased 32.1 percent, from $11,738 to $15,506.
Personal injury protection claims — often referred to as no-fault claims — experienced a similar decline (15.6 percent) in frequency, from 1.49 to 1.25 paid claims per 100 insured vehicles, but an even greater increase (38.2 percent) in the average cost per claim, from $5,802 to $8,017.
David Corum, vice president of the IRC, says that the average cost paid per claim has been going up so rapidly because of increases in use of different kinds of medical services, such as MRIs and chiropractors, and the prices charged for those services.
What’s more, there are factors in play that could make claim costs climb even higher. Corum says there are early indications that the long-term decline in the frequency of claims could be coming to an end because more drivers are taking to the streets. Lower gas prices are putting more cars on the road, and that results in more accidents.
“We face a particularly troubling trend if the frequency starts to go up at the same time the cost of a claim is going up,” Corum says. “We might see an even more dramatic increase in the cost of injuries.”
Health care costs outpace inflation rate
Robert Peterson, director of the Center for Insurance Law and Regulation at Santa Clara University School of Law, points out that health care inflation costs have outpaced the annual inflation rate for the consumer price index for every year from 2005 to May 2015, with the exception of 2008, according to Forbes. “One would expect the pain and suffering portion of bodily injury claims, where applicable, to follow a similar path.”
Kara Macek, spokeswoman for the Governors Highway Safety Association, agrees that health care costs are driving up the cost of bodily injury claims.
“Expenses are going up. It’s more costly to fix both cars and people,” she says.
Health reforms such as the Affordable Care Act and other efforts to reduce costs and use of services in health care has passed on some of those costs onto auto insurance, Corum says. As hospitals and other providers face reduced reimbursements from one type of payer, they turn to other payers such as auto insurers that don’t have the bargaining power to negotiate comparable rates. “There’s some cost shifting going on as a result,” he says.
Corum says that insurers don’t always have the same bargaining power as other purchasers of health services. “HMOs can negotiate fee schedules, and auto insurers have a more difficult time doing that just because of the nature of the business,” Corum says. “They don’t have their own networks. So it’s just much more difficult for an auto insurance company to negotiate lower prices.”
Peter Kochenburger, executive director of the insurance law program at the University of Connecticut School of Law, agrees that there’s support for the idea that medical expenses will be charged in the area with the higher reimbursement rate.
“If group health reimbursements are less than available from the tort system, then perhaps there is a financial incentive to classify an injury as auto related,” he says. “This has happened in the workers’ compensation system, at times.”
States follow similar claim trends
Among the study’s findings, all but four states — Florida, Kansas, Kentucky and Maryland — experienced a decline in bodily injury claim frequency from 2005 to 2013. And all but one state with personal injury protection coverage (South Carolina) experienced a decline in PIP claim frequency. But at the same time, the average cost paid per claim increased in every state but West Virginia.
In Michigan, for example, the average payment per paid PIP claim increased 72.2 percent, from $25,997 to $44,756.
“In Michigan, I believe the auto insurance industry would say that the main reason no-fault PIP medical claim costs are rising so fast is because Michigan’s no-fault policy system does not have a medical-provider fee schedule that controls the price that hospitals and doctors can charge for treating auto accident victims,” says Todd Berg, an attorney with Michigan Auto Law.
Berg says the firm has been pushing for a “truly fair” no-fault medical-provider fee schedule to curb auto-accident related medical expenses, and thus drastically reduce the increase in injury claim costs. In addition, Berg says having this kind of fee schedule would lower auto insurance prices, preserve the no-fault benefits that accident victims, remove instances of PIP fraud, streamline medical billing, and eliminate much of the lawyer-health care provider lawsuit industry, since doctors would be paid promptly.
Berg says that anecdotally, the trend of increasing injury claim costs results in an increase in the cost of legal services. “As the cost of auto-accident-related medical expenses increase – and, thus, injury claim costs increase – disputes about what claims, and how much of each of those claims, are going to be paid becomes more frequent,” Berg says. “More disputes means more lawsuits, and thus more lawyers, legal fees and litigation expenses.”
Distraction, other factors considered
Industry experts say that while health care appears to be the primary cause for the increase in injury claim costs, other contributing factors could be in play.
Distraction could be one of the culprits, Macek says. She points out that driver action was named the critical reason for 94% of crashes, according to National Highway Traffic Safety Administration.
“It’s really important to make sure that the cars we drive are safe,” Macek says. “But what often gets overlooked is that the contributing factor to most crashes is something that the driver did or did not do.”
Macek says that more resources are needed to educate drivers to make the right decisions behind the wheel. “We’ve made it culturally unacceptable to drink and drive and not wear your seatbelt. But we still have a long way to go on distraction,” she says.
Corum says the phenomenon of distracted driving is still so new that there isn’t enough research yet to document whether it is affecting injury claim costs, but common sense suggests that this could be the case. “I’m aware that distracted driving is a likely contributor to accidents,” he says.
There’s also the chance that some of these safety features could produce some unwanted, unintended consequences for drivers and injury claims.
Peterson says there could be a false sense of security among drivers when it comes to cars with improved safety features. “Sometimes when people know a car is safer, they do foolish things,” he says.
And in the future, some of these tech-driven safety features could even be harmful. Rosemary Shahan, president of Consumers for Auto Reliability and Safety, says that the fact that newer vehicles have more safety features has an upside. But there’s also a potential downside that could affect injury rates.
Shahan says there are growing concerns about the perception of safety surrounding self-driving cars. Even though these cars come equipped with more safety features, computers control a lot of those features. “That can be very scary because you’re not controlling the car anymore,” she says. “You could have a 12-year-old hacker controlling your car. And the industry is being very resistant to attempts to making the software more secure.”
Corum says that frequency of accidents would be an important change in the overall injury claim costs trend, and that it could have a magnifying effect on the use of medical services and costs. “We’re very concerned that we may see an increase in frequency,” Corum says. “It’s a little early to be able to say that conclusively.”