Health Costs Inflate Auto Premiums

July 5, 2002
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GRAND RAPIDS — Escalating health-care costs are forcing consumers and businesses to pay a little more in another area — auto insurance.

The amount that the 10 largest auto insurers in Michigan pay out annually in medical claims to cover injuries suffered by victims in vehicle collisions and other vehicle accidents rose by nearly one-third in just five years, from 1997 to 2001.

According to the Insurance Information Association of Michigan, medical claims — pushed higher by the rising cost of hospitalization, prescription medications and other associated expenses — have become the single biggest factor in rising auto insurance premiums.

“We’re definitely seeing it,” said Angie Rinock, of State Farm Insurance, one of the largest writers of auto policies in Michigan.

“Our claims are becoming more expensive for us.”

State Farm, which insures one of every five vehicles in the state, saw its medical claim costs rise 83 percent from 1997 to 2001 as health-care prices accelerated.

Another observer said that overall, auto insurers last year paid out $581.2 million in medical claims in Michigan, up 32 percent from the $440 million paid in 1997.

Those were figures announced by Leanne Snay, executive director of the Insurance Information Association of Michigan.

Increased medical claims accounted for about half of the higher costs that led to an average 4.2 percent rise in auto insurance premiums statewide during 2001, Snay said.

The trend accelerated through the first five months of 2002.

Through May of this year, Snay said auto insurance premiums have risen by an average of 5.9 percent in Michigan.

The average premium increase in 2001 was the largest in several years in Michigan, after a period in which automotive insurance went down slightly from 1997 to 1999, then inched up about 1 percent in 2000, Snay said.

Other factors involved in the rise in auto insurance rates last year were jury awards in personal injury cases that accounted for 41 percent of the average increase. Increasing vehicle repair costs and fraud and abuse also contributed to the increases.

Medical claims resulting from vehicle collisions now account for 25 percent of all claims to auto insurers, Snay said.

That’s an increase from 22 percent just five years ago, she said.

Auto crashes typically generate medical claims in the range of $6,000 to $9,000, although the cost to treat a victim can easily run into the tens of thousands of dollars.

That was a finding that Robert Hartwig wrote in a recent paper published online by the Insurance Information Institute.

Hartwig, the institute’s vice president and chief economist, wrote that the cost of auto injury medical claims is rising by as much as 30 percent is some states.

The $15 billion to $20 billion that auto insurers pay annually in the U.S. each year “are a very significant component of auto insurance costs and the upward trend in claims costs in an important cost driver in auto insurance today,” Hartwig wrote.

A study the National Highway Transportation Safety Administration published in May showed that medical costs represented 14.1 percent, or $32.6 billion, of the $230.6 billion economic cost of auto crashes in 2000.           

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