There could be a silver lining in the dark cloud cast over the economy by high gasoline prices. People are driving less, and that is reducing the frequency of accidents. Meyer Shields, an investment analyst with Stifel Nicolaus, told the National Underwriter that that reports from the U.S. Department of Transportation indicate Americans are driving fewer miles. He speculated that the primary cause of this trend is the rising price of gasoline. For insurers, he continued, this can have a positive impact on accident frequency and underwriting. With fewer miles driven, personal lines auto insurers should produce better than expected underwriting results.

The Mississippi Insurance Department announced on May 28 that State Farm filed a rate reduction of 2.9 percent on automobile insurance in the state for both new and renewal business to take effect June 23. State Insurance Commissioner Mike Chaney said the reductions were the result of improvements in accident frequency.

The Transportation Department’s Federal Highway Administration reported that on a year-over-year basis, the estimated vehicle miles traveled in March dropped 4.3 percent, or a total of 11 billion miles. The authority called it “the sharpest yearly drop for any month” in the history of reporting, which began back in 1942.

Robert Hartwig, president of the Insurance Information Institute, said that in the 1970s when oil embargoes cut supplies and raised prices, data indicated a very sharp drop in the frequency of auto accidents.  Hartwig noted that as soon as gas became available and prices fell, people rapidly began to drive again, with accident frequency moving back to pre-embargo levels. Conventional wisdom would indicate that there should be a drop in accident frequency as long as gasoline prices stay above drivers’ comfort level.

Americans Driving At Historic Lows (Federal Highway Administration 5/23/08)

Drop in Driving Trends May Help Insurers (National Underwriter 5/28/08)

June 3, 2008