Fewer miles driven equal fewer claims, and recent data suggests the industry can expect just that. The Federal Highway Administration said Americans drove 11 billion miles less in March 2008 when compared with March last year -- a 4.3% decline. It is the sharpest yearly drop for any month since the FHWA began keeping traffic volume data in 1942.
However, other economic factors such as repair and medical costs are on the rise. As a whole, the industry reflected this trend by reporting high severity numbers during the first quarter.
"You have to be careful about assuming less driving will necessarily mean lower prices," said Jeffrey Brewer, director of public affairs for the Property Casualty Insurers Association of America. "Fewer but more costly accidents can offset each other."
For example, Tom Wilson, president and chief executive officer of Allstate, said during an April first-quarter earnings conference call that the increases of severity in damage and bodily injury of 4.1% and 8.6%, respectively, offset a drop in frequency of 2.4%.
"In 2007, we saw loss ratios kick up, and the industry expressed a need to increase rates," said Brian Sullivan, editor and publisher of Auto Insurance Report. "The drop in frequency potentially caused by the increase in gas prices is more likely to stabilize rates than reduce them."
The Consumer Federation of America disagrees with that assessment, releasing statements recently that urge drivers to call insurers to report they are driving fewer miles. Decreased mileage could save consumers 5% to 15% because rates are partially based on how much a person drives, said J. Robert Hunter, former Texas insurance commissioner and director of insurance for CFA. Hunter also urged states to require insurers to lower rates.
Bob Passmore, director of personal lines for the PCI, called the CFA's release "misleading," saying such savings might "take a more significant change in driving habits than is possible for most people." Though some people will change driving habits, most drivers will continue using automobiles to commute because mass transit is not an option, he said.
Sullivan said insurers do not put enough weight on mileage, because it is a self-reported factor, to result in a reduction. There are many more factors to determine rates.
State Farm spokesman Jeff McCollum said people may be driving less but not enough to reduce premium rates. The company has seen nothing to indicate fewer crashes or claims. McCollum said the company has seen an increase of 40% between 2002 and 2008 in the number of policies for motorcycles and scooters, with a "noticeable increase" since gas prices increased last summer.
Robert Hartwig, president of the Insurance Information Institute, said the only time the industry saw a reduction in rates because of gas prices was during the energy crisis of the 1970s but any comparison would be unreasonable.
"There was an oil embargo; there was no gas," Hartwig said of the 70s energy crisis. "You literally could not drive because you could not get gas. You don't have that today."
During the energy crisis speed limits were reduced to 55 mph on the nation's highways to save gas, but it also reduced accident frequency and severity. There is no discussion to do that now, Hartwig said.
The lack of historical data makes it difficult to predict the affect of gas prices on insurance.
"When someone says they know, I'm always curious because it's so hard to say," Sullivan said. "There are so many other factors at play in this industry. Usually when one factor goes down, another goes up."
Though gas prices might keep some