Automobile Trends: Who (or What) is at the Wheel AIPSO Residual Market Forum Providence, RI April 14, 2015 Download at

Automobile Trends:Who (or What) is at the Wheel

AIPSO Residual Market ForumProvidence, RIApril 14, 2015

Download at www.iii.org/presentations

James P. Lynch, FCAS MAAA, chief actuaryInsurance Information Institute 110 William Street New York, NY 10038

Tel: 212.346.5533 Cell: 917.359.3908 [email protected] www.iii.org

http://www.iii.org/presentations

2

Automobile Trends: Outline

1. Trends in Auto Usage

2. Driving Trends - Unauthorized Immigrants

- Uninsured Motorists

- Insurance Affordability

3. Autonomous Vehicles

Trends in Auto Usage

3

Shaking off the Recessionary Hangover

1/6

2/3

3/3

4/7

5/5

6/2

7/7

8/4

9/1

10/

11/

12/

1/5

2/2

3/2

4/6

$2.00

$2.25

$2.50

$2.75

$3.00

$3.25

$3.50

$3.75

$4.00

4

Avg. Price /Gallon

The Price of Gas, 2014-2015

Price is Weekly U.S. All Grades All Formulations Retail Gasoline PricesSources: Federal Energy Administration (http://www.eia.gov/petroleum/gasdiesel/ ); I.I.I.

Over the Course of the Second Half of the 2014 Calendar Year,Gas Prices Fell 34%.

From July through December, gas prices

fell virtually every week

Even after rebound, prices remain 30% below the July

peak.

Until July, gas prices were persistently high

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013 201

201

$1

$2

$3

$4

2700.0

2750.0

2800.0

2850.0

2900.0

2950.0

3000.0

3050.0yearly average gas prices

rolling 12-month miles driven at year-end*

5

Avg. Price

Do Changes in Gas PricesAffect Miles Driven? 2000-2014

Sources: Federal Energy Administration (http://www.eia.gov/petroleum/gasdiesel/ ); *gas prices and miles driven through DecemberFederal Highway Administration (http://www.fhwa.dot.gov/ohim/tvtw/tvtpage.cfm ); I.I.I.

Lots of Factors Affect Miles Driven: State of Economy, Weather, Gas Prices, Etc.

/GallonMiles Driven

(Billions)

2002-2007: People Drive More Despite Higher Prices

Focus On 2014

http://www.fhwa.dot.gov/ohim/tvtw/tvtpage.cfm

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec$2.50

$2.75

$3.00

$3.25

$3.50

$3.75

$4.00

0.0%

0.5%

1.0%

1.5%

2.0%

Monthly Avg Gas Price

Chg in 12-mo Avg. Miles Driven Vs. 2013

6

Avg. Price

Do Changes in Gas Prices Affect Miles Driven? A Look at 2014

Sources: Federal Energy Administration (http://www.eia.gov/petroleum/gasdiesel/ ); *gas prices and miles driven through DecemberFederal Highway Administration (http://www.fhwa.dot.gov/ohim/tvtw/tvtpage.cfm ); I.I.I.

Prior research on the relationship between gas prices and miles driven says that, in the short run, an increase in gas prices produces little change

in miles driven. No recent research on the effect of price drops.

/Gallon% Chg. in

Miles Driven… Four

Months Later, Mileage Starts

to Surge.

June-July: Gas Prices Peak …

Still Lower Gas Prices Imply Surge Will Continue.

http://www.fhwa.dot.gov/ohim/tvtw/tvtpage.cfm

7

Something Unusual is Happening:Miles Driven*, 1990–2015

*Moving 12-month total. The 2015 figure is through January 2015, the latest available.Note: Recessions indicated by gray shaded columns.Sources: Federal Highway Administration (http://www.fhwa.dot.gov/policyinformation/travel_monitoring/tvt.cfm); National Bureau of Economic Research (recession dates); Insurance Information Institute.

Billions

2,100

2,200

2,300

2,400

2,500

2,600

2,700

2,800

2,900

3,000

3,100

'90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15

A new record in January 2015: miles driven was below the prior

peak for 87 straight months—over 7 years! Previous record was

in the early 1980s (39 months).

Some of the growth in miles driven is due to population growth: 1997 vs. 1992: +5.1%2002 vs. 1997: +7.4%2007 vs. 2002: +4.7%2012 vs. 2007: +3.4%

Driving Trends

8

Illegal Immigrants, Legal Drivers

Unauthorized Immigrants

9

DACA: Deferred Action for Childhood Arrivals (arrived in U.S before age 16, not automatically eligible for license)SOURCE: National Immigration Law Center.

• 10 States Allow Illegal Immigrants to Get Licenses, plus DC, Puerto Rico

• Could Always Get Insurance, Usually Non-standard Before

California Became Latest State to Allow Unauthorized Immigrants to Get Driver’s Licenses (AB60 – 1/1/15) – And by Far the Largest

California AB60

In Addition to Standard Driving Tests (Vision/Written/Behind the Wheel), Illegal Immigrants Need: Proof of Identity (Foreign

passport/ID card/birth certificate OR tax returns/school documents/marriage license, etc.)

Proof of California Residency (Lease/mortgage bills/medical documents, etc.)

Docs in Order448693

91%

Some Ques-tions28163

6%

Lack Documenta-tion

171423%

Applicants Through March 27

10

SOURCE: California Department of Motor Vehicles: http://dmv.ca.gov/portal/dmv/detail/pubs/newsrel/newsrel15/2015_27 .

http://dmv.ca.gov/portal/dmv/detail/pubs/newsrel/newsrel15/2015_27



California AB60

DMV estimated 1.5 million applicants in 3 years 900 new employees

Added Saturday hours

200,000 New Licenses

6-Mo Projec-tion

3-Mo Actual -

100,000

200,000

300,000

400,000

500,000 50

0,0

00

49

3,9

98

Expected vs. Ac-tual

11

Insurance Issues Eligible for Low-Cost Auto (CLCA)

Low Limits: $200-$500 a Year

Takeup Seems Low

Standard, Nonstandard Pursuing

SOURCE: California Department of Motor Vehicles.

Non-standard: A Growing Niche

2011 2012 2013 20140.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

2.6

%

6.0

%

8.3

%

5.1

%

1.8

%

7.2

%

3.4

%

4.4

%

Countrywide

NSA Std Mkt

DP

W G

row

th F

rom

Prio

r Y

r

Avg. GrowthNSA: 5.2%Std: 4.2%

12

SOURCES: SNL Financial data; Insurance Information Institute calculations.

2011 2012 2013 2014

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

1.5%

4.6

%

12

.7%

6.3

%

-0.2

%

2.4

%

4.1

%

6.5

%

California

NSA Std Mkt

DP

W G

row

th F

rom

Prio

r Y

r

Avg. GrowthNSA: 6.3%Std: 3.2%

Insurers Have Become More Sophisticated, Can Price Risks More Precisely.

13

Impact on Uninsured Motorists

15

.6%

16

.0%

15

.1%

14

.2%

12

.8%

13

.4%

14

.2%

14

.5%

14

.9%

14

.6%

14

.6%

14

.3%

13

.8%

14

.3%

13

.8% 12

.3%

12

.2%

12

.6%

13

.0%

13

.2%

13

.8%

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12

Why? Auto Insurance Is Gradually Becoming More Affordable.

SOURCE: Insurance Research Council.

UM Rate Slowly Declining

14

Auto Insurance vs. Other Essentials

Source: Insurance Information Institute calculation based on data from Bureau of Labor Statistics, Consumer Expenditure Surveys for 2001 and 2011, and National Association of Insurance Commissioners.

Percent Growth, 2001-2011

Auto insurance expenditures growing more slowly

Spending Pattern in 2012 of Americansin the Lowest-Income Quintile

Food$3,502

Housing$8,836

Health Care$1,677

Auto Insurance$511

Other Transportation$2,936

Other$4,692

15

*Range computed by adding or subtracting two standard deviations from the mean expenditure.Source: Insurance Information Institute calculations based on data from Bureau of Labor Statistics, Consumer Expenditure Surveys for 2012.

Income range for this quintile: $0 to $19,111Average annual expenditure range*: $21,382 to $22,926Average annual expenditure for auto insurance*: $406 to $616

40%

16%21%

13%

8%2%

Auto Insurance – Not A Big Bill, Even

Among Least Affluent

16

1.89

%

1.73

%

1.59

%

1.57

%

1.44

%

1.39

%

1.38

%

1.38

%

1.38

%

1.33

%

1.30

%

1.29

%

1.25

%

1.23

%

1.22

%

1.22

%

1.21

%

1.19

%

1.17

%

1.16

%

1.15

%

1.15

%

1.14

%

1.14

%

1.11

%

0.0%

0.5%

1.0%

1.5%

2.0%

LA FL MI WV MS RI DE NV NY KY SC NJ AR AZ OK TX PA GA NM DC MT OR AL US TN

*Average auto insurance expenditure as a percentage of the 2011 median income for a family of fourSource: Auto Insurance Report, January 20, 2014.

Average Expenditure for Pvt. Passenger AutoInsurance as Pct. of Median Family Income*, 2011

Highest States

States Allowing Unauthorized Immigrant Drivers

17

1.10

%

1.10

%

1.09

%

1.06

%

1.05

%

1.05

%

1.03

%

1.02

%

1.01

%

1.00

%

0.99

%

0.97

%

0.97

%

0.95

%

0.95

%

0.95

%

0.95

%

0.94

%

0.93

%

0.92

%

0.91

%

0.90

%

0.89

%

0.88

%

0.88

%

0.83

%

0.81

%

0.0%

0.5%

1.0%

1.5%

2.0%M

A

MO

WA

AK

CT

MD IN UT

OH IL

NC

CO

KS HI

ID ME

MN VT WI

NE

CA

WY

NH IA SD

ND VA

*Average auto insurance expenditure as a percentage of the 2011 median income for a family of fourSource: Auto Insurance Report, January 20, 2014.

Lowest States

Average Expenditure for Pvt. Passenger AutoInsurance as Pct. of Median Family Income*, 2011

In Most States With Illegal Immigrant Laws, Insurance Costs Trail National Average.

More Affordable → More Flexible U/W → Smaller Residual Market

18

Auto Insurance Burden Easing,Lower-Income* Americans Say

*Annual income less than $35,000. Source: Insurance Information Institute Annual Pulse Surveys (1997-2014).

% Saying Auto Insurance is a ‘Significant Burden’

39

23

30

20

28

27

21

26 25

21 23

30

23

18 20

18 19

23

0

5

10

15

20

25

30

35

40

45

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Fewer Than 1 in 4 Finds Cost a Significant Burden

For the last 4 years (since 2010), among those with incomes in the

two lowest quintiles, fewer than 1 in 4 said auto insurance premiums

were a significant burden

The effects of the “Great Recession” briefly caused auto

insurance premiums to be burdensome

for more low-income people

I.I.I. Poll: Shopping for Insurance

19

Q. When your auto insurance policy was up for renewal did you compare prices at different insurance companies in any of the following ways (Phone, Online, Agent)?

Source: Insurance Information Institute Annual Pulse Survey.

Insurance Has Also Gotten Easier to Shop For.

32% 37% 37% 35% 39%

68% 63% 63% 63% 61%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Less Than 35K 35K-50K 50K-75K 75K-100K More Than 100K

Annual Income

Don't Know

No to All

Yes to At Least One

I.I.I. Poll: Shopping for Insurance

20

Q. Do you think you have more choices today among auto insurers than people had 10 years ago?


People Say They Have More Choices for Auto Insurance. Lowest-Income Americans Are the Most Likely to Say So.

90%82%

87% 86%82%

0%

50%

100%


Annual Income

Pe

rce

nta

ge

An

sw

eri

ng

'Y

es

'

I.I.I. Poll: Ads Are Everywhere

21

Q. How long has it been since you have seen or heard an advertisement for auto insurance?


Insurers Are Spending More on Ads, and the Ads Are Effective, Including Among Lowest-Income Americans.

87%

96%89% 89% 90%

0%

50%

100%


Annual Income

Pe

rce

nta

ge

An

sw

eri

ng

A M

on

th o

r

Le

ss

Autonomous Vehicles

22

They’ll Change Insurance - Slowly

23

When Computers Take the Wheel . . .

Step 1: Co-pilot

Crashes Avoided Per Year All Injury Fatal

Forward Collision Warning 1,165,000 66,000 879

Lane Departure Warning 179,000 37,000 7,529

Side Assist View (Blind Spots) 395,000 20,000 393

Adaptive Headlights 142,000 29,000 2,484

Total Unique Crashes 1,866,000 149,000 10,238

24

In Theory

Some of These Features Are Already on Vehicles. Others Are On Their Way Soon.

Source: Highway Loss Data Institute, Insurance Institute for Highway Safety, National Highway Traffic Safety Administration.

30% of Fatalities

6% of Injuries

In Practice- Forward Collision Warning Working- Adaptive Headlights Working- Others: Benefits ‘Less Clear’

Step 1: Co-pilot

25Source: Highway Loss Data Institute, Insurance Institute for Highway Safety.

Technology Emerges Slowly.

Step 1: Co-pilot

26Source: Highway Loss Data Institute, Insurance Institute for Highway Safety.

20 Years With Mandate, Longer

Without.

27

Step 2: The ‘Dream Vehicle’

Delphi prototype “Roadrunner”

SF to NYC in Nine Days (4/2015)

3,400 Miles – All but 50

Autonomous

Issues: ‘Unmarked Lanes,

Heavy Roadworks,’

When Sun Was Low in Sky

These Are on the Drawing Boards of Almost All Automakers. But the Dream Vehicle Is a Long Ways Away.

When Will This Happen?

2020s 2030s 2040s 2050s0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

1%

10%

20%

40%

2%

20%

40%

60%

Percent of Vehicle Fleet

2020s 2030s 2040s 2050s0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

1%

10%

30%

50%

4%

30%

50%

80%

Percent of Miles Driven

50% of Market - a Generation From Now

28

Expensive

SOURCE: Autonomous Vehicle Implementation Predictions, Victoria Transport Policy Institute, 2015.

Moderate

Minimal Price

Standard Equipment

29

Why Will It Take So Long?

11.211.4 11.4 11.4 11.5 11.6 11.6 11.7

10.910.6

10.310.110.09.9

8.0

8.5

9.0

9.5

10.0

10.5

11.0

11.5

12.0

Sources: Polk, August 2013 Survey, IHS Automotive June 2014; Insurance Information Institute.

Average Vehicle Age (Years)

29

Recession Hangover – People Struggling to Afford Major Purchase; Cars Are Built Better, Last Longer.

30

Why Will It Take So Long?

Q. Would You Be Willing to Ride in a Driverless Car?

Source: Insurance Information Institute annual Pulse Survey, June 2014.

Nearly Three Out of Five People Say They Would Not Ride in a Driverless Car.

1%

40%

59%Yes

No

Don’t Know

Enhanced Vehicle and Road Safety Have Made Driving Much Safer

31

Crash deaths are down 40% since the

early 1970s

Source: National Highway Transportation Safety Administration as cited in Insurance Institute for Highway Safety presentation by Adrian Lund, Ph.D., Drivers and Driver Assistance Systems: How Well Do They Match?’, June 18, 2013; Insurance Information Institute.

Fatal crash rates have fallen by 85% over the

past 60 years

Motor Vehicle Crash Deaths and Crash Death Rate, 1950-2012

32

Fatalities per Hundred Million Miles Driven

1.9

1.7

1.6

1.6

1.6

1.5

1.5

1.5

1.4

1.4

1.4

1.4

1.4 1

.5

1.5

1.5

1.4

1.4

1.2

1.1

1.1

1.1

1.1

1.1

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

2.0

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

Sources: National Highway Traffic Safety Administration.

32,719 Traffic Deaths in 2013, 2.1% Less Than 2012.

Auto Fatality/Injury Rates Have Been Falling for Decades.

33

But Auto Insurance Expenditures Rise

651668

691705

726

786

830842

831816

795 789 787 791 798815

849

885

690685703

$600

$650

$700

$750

$800

$850

$900

$950

94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13E

14E

If Cars Are Safer, Why Are Insurance Costs Rising?

* Insurance Information Institute Estimates/ForecastsSource: NAIC, Insurance Information Institute estimate for 2013-2014 based on Motor Insurance CPI.

For Past 20 Years, Expenditures Rising About 1.5% Annually

Auto Insurance: Frequency vs. Severity

Property Damage Bodily Injury0

1

2

3

4

5

6

7

8

9

7.92

2.61

4.22

1.23

3.55

0.95

Frequency

1963 1988 2013

Cla

ims

pe

r 1

00

Insu

red

Ve

hic

les

Down 63%!

Property Damage Bodily Injury0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

1831,1431,288

7,553

3,231

15,443

Severity

1963 1988 2013

Cla

im S

eve

rity

UP 1,251%

UP 1,666%!

34

Sources: Insurance Institute for Highway Safety, Insurance Services Office, Insurance Information Institute.

Down 55%!

Auto Claims Have Grown Faster Than Inflation for 50 Years

CPI-U Bodily Injury Severity Property Damage Severity0%

200%

400%

600%

800%

1000%

1200%

1400%

1600%

1800%

650%

1251%

1666%

35

Percentage Change, 1963-2013

36

I.I.I. Poll: Who Is Responsible?

Q. Who should be responsible if an accident occurred involving a driverless car?


Half of Respondents Think a Driverless Car’s Manufacturer Should Bear Responsibility in Case of an Accident.

6%9%

11%

50%

24%

Car’s Manufacturer

Car’s Owner

Don’t Know

Car’s Occupant

Car’s Insurer

37

I.I.I. Poll: Who Is Responsible?

Q. Would you be willing to pay more for your car to cover the manufacturer’s liability in case of an accident?


Only a Quarter of Americans Would Be Willing to Pay More for a Driverless Car to Cover the Manufacturer’s Liability in Case of an

Accident.

2%

26%

72%

Yes

No

Don’t Know

The Future of the Car of the Future

Technology Has Been Making Cars Safer for Decades.

It takes a Long Time for Technology to Penetrate the Marketplace.

The Size of Claims Has Grown Faster Than the Frequency of Claims Has Shrunk.

Auto Insurers Should Be Up to the Challenge.

38

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Insurance Information Institute Online:

39

Documents

Automobile Trends: Who (or What) is at the Wheel AIPSO Residual Market Forum Providence, RI April 14, 2015 Download at