Smartphone Use Is Driving Up Auto Insurance Rates

Distracted driving is becoming a financial issue, as well as a safety issue. This may stimulate demand for driverless vehicles from consumers and officials, since experience suggests it appears probable that consumers will change their driving habits more willingly than their smartphone habits. JL 

Leslie Scism and Nicole Friedman report in the Wall Street Journal:

“Distracted driving was always there, but it intensified as more applications for smartphones became available." Among drivers aged 18 to 29, 64% said in 2015 that they text while driving, and 54% said they use the internet behind the wheel. The average U.S. car-insurance premium rose 16% from 2011. The number of deadly accidents showed an estimated 6% rise for 2016. “Those are big numbers, and they are going in the wrong direction.”
Distracted by their smartphones, America’s drivers are becoming more dangerous by the day. That is pushing auto-insurance rates higher as insurers struggle to keep up.
Costs associated with crashes are outpacing premium increases for some companies, according to insurers, and they say the use of smartphones to talk, text and access the internet while on the road is a new and important factor behind the wrecks.
It is “an epidemic issue for this country,” said Michael LaRocco, chief executive of State Auto Financial Corp., at an insurance-industry conference last month.
State Farm Mutual Automobile Insurance Co., the largest U.S. auto insurer by market share, said 36% of the people it surveyed in 2015 admitted to texting while driving, and 29% said they access the internet, compared with 31% and 13%, respectively, in 2009. Among drivers aged 18 to 29, 64% said in the 2015 survey that they text while driving, and 54% said they use the internet behind the wheel.
State Farm’s survey found that 52% of respondents in 2011 owned a smartphone, and 88% owned one in 2015.

Driven to Distraction

Car-insurance rates are going up...

Average annual auto-insurance bill

...because Americans are driving more...

Highway miles driven annually

...and they're getting in more accidents...

Total vehicle crashes

…which is leading to higher payouts by insurers...

Percentage of personal auto premiums paid to claims and related expenses

....and insurers say the rise in smartphone ownership correlates with the rise in accidents.

Smartphone ownership among drivers

The connection between phones and collisions is surfacing in insurers’ earnings. Fourth-quarter underwriting results for personal auto insurance worsened at Travelers Cos., Hartford Financial Services Group Inc., and Horace Mann Educators Corp., and all three said distracted driving was partly to blame. The three companies insure millions of vehicles across the U.S.
“Distracted driving was always there, but it just intensified as more applications for the smartphones became available,” said Bill Caldwell, executive vice president of property and casualty at Horace Mann, in an interview. The insurer expects to raise rates 8% this year on top of average 6.5% increases in 2016.
The average U.S. car-insurance premium rose to an estimated $926 a year in 2016, according to trade group Insurance Information Institute, up 16% from 2011. Rates are rising despite predictions that they would fall as more vehicles moved out of showrooms with high-tech anticollision gear.
The number of deadly accidents jumped 7.2% in 2015, according to the National Highway Traffic Safety Administration. A recent report from the nonprofit National Safety Council showed an estimated 6% rise for 2016.
The growing number of wrecks “is swamping the much-heralded beneficial impacts of newer, safer vehicles,” said Robert Hartwig, an insurance professor at the Darla Moore School of Business at the University of South Carolina.
At Allstate Corp., President Matthew Winter told shareholders this month that the correlation between smartphone ownership and accident frequency is striking. Allstate drivers’ average auto bill is up by more than 11% since 2014.
While cellphones have been widespread for years, Mr. Winter said at a conference, they were “not as distracting as…when people brought smartphones into the car and began texting and web surfing and videoing and everything else while they were driving.”
The rise in traffic deaths is the result of many factors. Low gas prices and a U.S. economic recovery combined to put more drivers on the road, giving drivers less time to react if they are distracted by their smartphones, insurers said. One auto insurer, Cincinnati Financial Corp., told investors last October that it is seeing many accidents with “no skid marks.”
In the latest federal analysis available, the NHTSA attributed distraction of all types—reaching for a dropped item, attending to children in a back seat or eating—to 9.9% of all traffic fatalities in 2015 compared with 9.8% the year earlier.
In a separate 2015 government study, researchers found the percentage of drivers text-messaging or manipulating hand-held devices was 2.2%, flat compared with the prior year but up from 0.4% in 2006. For drivers aged 16 to 24, 4.9% visibly used hand-held devices in 2015. In that study, data collectors watched drivers from 1,566 roadside sites in rural and urban areas nationwide from 7 a.m. to 6 p.m. for much of a month and observed 45,916 vehicles.
Insurance executives and safety experts say they aren’t surprised national studies don’t capture the full smartphone-related distracted-driving problem. Studies that rely on police reports and observations of passing cars likely undercount the scale of smartphone use because drivers don’t always admit to what they were doing and hands-free devices can’t always be seen from the roadside, said Deborah Hersman, chief executive of the National Safety Council.
Car insurers, on the other hand, have an incentive to quickly gather detail about wrecks involving their policyholders because they need to stay on top of trends that affect profitability. They don’t break out distracted-driving trends in rate-increase requests filed with state insurance departments, actuaries said.
The alarms being sounded by the industry are based partly on internal investigations to determine causes of policyholders’ crashes. In costlier wrecks, many insurers collect police reports, witness statements and their own drivers’ accounts, executives said. In claims that involve litigation, they may obtain drivers’ phone records, they said.
State Farm began surveying the public in 2009 to assess behind-the-wheel phone use. Drivers who participated in the survey acknowledge the distractions of their smartphones, according to State Farm, but many continue to use them. In the latest survey, about one-fifth of drivers admitted taking photos with their phones and a 10th recorded video. Both these activities were added to the 2015 survey.
“Those are big numbers, and they are going in the wrong direction,” said Chris Mullen, who heads State Farm’s technology research.