August 27, 2010

How Auto Insurance Claims Have Risen In The Last Five Years

In the last five years, there has been a significant increase in the number of insurance claims filed by auto insurance policyholders to their respective policy issuers. However, at the same time, there has also been an increase in the number of fraud cases, which is believed to be attributable to the economy. As consumers' finances worsen, they are more likely to engage in fraudulent activities, including and not limited to, auto insurance scams based on arson, staged accidents, disposal or "hit and run" schemes.

Although auto insurance claims based on fraud are not the only contributing factor to the noticeable increase in the number of claims filed over the past five years, insurance fraud does have a large impact on this number. According to the National Insurance Crime Bureau, there has been a 46 percent increase in the number of fraudulent claims in the past three years. This leads to a significant rise in rates that consumers pay for auto insurance across the nation.

Other reasons for the rise in insurance claims are the number and the severity of these accidents; the damages awarded by the courts; legal, medical, and administrative costs; collusion within the industry; statistical interpretation; and return on investment.

As previously stated, many of these aforementioned factors, combined in some fashion together, are all contributing to the rise in both the cost and number of auto insurance claims filed. These factors can cause the rates of policyholders to increase dramatically, even if they have never filed a claim. These costs are passed onto the consumer in the form of rate increases. In the last three years, the total of these increases has been about 24 percent overall.

Additional factors contributing to the rise in insurance claims filed are the relative inexperience of new drivers and the increased number of older drivers. Even though there has been less driving on the roadways, due in part to the increase in gas prices and the downturn in the economy, there have still been a large number of accidents reported. Fraud is not the primary underlying cause of these accidents-distracted driving due to reading and sending text messages and talking on cellular phones are also causes for accidents on the roadways just by themselves. Many states have enacted bans on talking or texting while driving, citing the dangerously distracting nature of these activities on drivers. Other factors that have contributed to the rise in auto insurance claims are the relative difficulty and expense in the repair of newer, late model cars for relatively minor damages, due to the increased push for safer, more efficient cars.