Motor Vehicle Insurance in
the United States
A 1998
- 1999 Snapshot with Emphasis on
Motorcycle Coverage
Overview
Motor vehicle insurance pays for many of the medical and work losses resulting
from highway crashes. Insurance information is critical to understanding crash
costs and who pays them. No insurance industry sources provide discrete
information on motorcycle insurance. Nor do they indicate what portion of a
driver's insurance premiums pay for losses in crashes caused by drivers of
other vehicles. They also do not provide factors for estimating how much
insurance pays annually to compensate bodily injury versus property damage.
NHTSA collected some of this information in 1988.
To address the need for recent information,
we obtained unpublished data collected by the Motorcycle Insurance Committee of
the National Association of Independent Insurers (NAII) from six members that
specialize in motorcycle insurance. We supplemented their data with parallel
data requested directly from the nation's five largest motor vehicle insurers.
The data were collected on spreadsheets. Data from individual firms would be of
considerable value to their competitors. Therefore, insurers required that
their data be kept confidential and only released after pooling with data from
other responding firms. To further ensure confidentiality, the NAII kindly
received and pooled the data, then provided the study team with the aggregates.
Both insured motorcycles and other private
passenger vehicles experienced $35.50 in crash-related claims per thousand
miles traveled in 1998-1999. Legal and lender mandates force most motorists to
insure against a broad range of risks. Motorcycles, however, have less
insurance mandates. They typically insure against fewer risks. If they were as
broadly insured as autos, their claims costs per mile traveled would have been
almost 1.6 times average auto claims costs. Average property damage losses per
claim were 65 percent larger for motorcycles than other private passenger
vehicles. Compared to other private passenger vehicles, motorcycles also had
worse loss experience on theft, vandalism, and other non-crash risks.
Per thousand miles traveled, insurance
coverage cost $87 for a motorcycle but just $61 for other private passenger
vehicles. In aggregate, pricing for motorcycle coverage was commensurate with
loss experience. Liability coverage, however, might have been overpriced and
property damage coverage under priced. Profits on motorcycle liability coverage
offset losses on property damage coverage. In contrast, insurers lost money due
to the under pricing of other auto policies in 1998-1999. In interpreting these
results, it is important to remember that liability insurance largely pays for
bodily injury to others injured by the insured, not to the insured personally.
Thus, for example, when a motorcyclist chooses against wearing a helmet, any
resulting rise in insurance claims primarily will be against the insurance of
other at-fault motorists..
Among insured motorcycles with coverage
details known for 1999, 14 percent had 750-1000 cc engines, 43 percent had
larger engines, and 43 percent had smaller ones. Insured motorcycles with
engines below 750 cc had fewer claims. Claim severity rose with engine size.
Motorcycles above 1000 cc had especially high claim severity.
Losses per policy rose dramatically with motorcycle engine size, with premiums
rising proportionately. Touring bikes comprised 10 percent of insured
motorcycles and sport bikes just over 3 percent. Losses were higher for these
motorcycles, in part because they typically have larger engines. Touring cycles
also are expensive and tended to be comprehensively insured. Sport bikes,
however, had bad loss records. Despite having narrower policies than most
insured motorcycles, these vehicles experienced losses per policy that were 1.5
to 2 times those of other motorcycles with large engines and 3 times the
all-motorcycle average.
Roughly 36 percent of auto liability loss costs and 65 percent of auto property
damage loss costs compensated crash-related property damage. The comparable
figures for motorcycles were 11 percent and 61 percent. In 1999, auto insurance
compensated an estimated $43,944 million in crash-related property damage and
$34,684 million in bodily injury losses. Of this amount, motorcycle insurance
paid for roughly $161 million in crash-related property damage and $155 million
in bodily injury losses. About one-ninth of insurance claims payments
compensated costs of crashes caused by other drivers.
Because more than half of motorcycle
liability payments are under uninsured motorist coverage, however, 55 percent
of the motorcyclist’s liability insurance bill goes to pay costs imposed by
other at-fault drivers.
This project yielded data that will enhance future NHTSA crash costing. These
data are much different than those NHTSA collected in 1988. Increasing
computerization and an improved data collection strategy make these data more
detailed, on point, and precise. Supplying a data spreadsheet to the companies
surveyed proved a very useful data collection tool.
Motor vehicle insurance compensates a substantial portion of the medical and
work loss costs resulting from highway crashes. Insurance information is
critical to understanding crash costs and who pays them. A.M. Best Company
annually publishes a very limited amount of insurance data, separating personal
and commercial vehicles. The National Association of Insurance Commissioners
annually publishes a richer compilation on auto insurance. The Insurance
Research Council periodically analyzes closed claim data or surveys crash
victims about losses and their reimbursement. Beyond this, a few states also
occasionally study aspects of their motor vehicle insurance markets.
The literature leaves many knowledge gaps.
Discrete information on motorcycle insurance is virtually unavailable. Nothing
has been published about how motorcycle insurance claims vary with motorcycle
type and engine size. Nor is information available that compares policy costs
or claims experience between motorcycle and automobile insurance. Again, the
insurance data needed to estimate external insurance costs--a driver's
insurance premiums that pay losses in crashes caused by drivers of other
vehicles--are lacking. High external costs are a critical reason to consider
highway safety interventions like motorcycle helmet laws that restrict personal
freedom. Finally, existing sources do not provide factors for estimating how
much motor vehicle insurance pays annually to compensate bodily injury versus
property damage. Those factors last were estimated by Miller (1989) and Miller
et al. (1991) using 1988 data collected for a Congressionally requested study
(Miller 1988) and even older data from Blincoe and Luchter (1983). They are
used in modeling the insurance claims processing and administrative costs of
highway crashes. Thus major gaps exist in recent auto insurance data with
relevance to Federal policy.
This report fills the gaps. It provides data
on motorcycle insurance and updated data on auto insurance. Designed as a
companion to a NHTSA literature review on the costs of motorcyclist crashes
(Lawrence, Max, and Miller 2003), it was produced under the same contract. The
data in the present report can be used to understand and more accurately cost
motorcycle crashes and highway crashes generally, and provide a template for
building insurance related costs of commercial vehicle crashes (an interest of
the Network of Employers for Traffic Safety and of the Federal Motor Carrier
Safety Administration).
The report summarizes the methods used in the
study and defines a number of insurance terms. It then presents findings about
(1) motorcycle insurance, (2) insurance for other private passenger vehicles,
(3) similarities and differences between motorcycle and other private passenger
auto coverage, (4) commercial auto insurance, and (5) what losses auto
insurance compensates.
Aside from some sparse information culled from Best's Aggregates and Averages
(2000), this report is based on data collected from insurers. Much of the
motorcycle data was collected by the Motorcycle Insurance Committee of the
National Association of Independent Insurers (NAII) from six members that
specialize in motorcycle insurance. We supplemented their data with parallel
data requested directly from the nation's five largest motor vehicle insurers.
Some of them, however, could not readily provide some or all of the requested
information. The data we collected from individual firms would be of
considerable value to their competitors. Therefore, insurers required that their
data be kept confidential and only released after pooling with data from other
responding firms. To further ensure confidentiality, the NAII kindly received
and pooled the data, then provided the study team with the aggregates. As a
further confidentiality protection, here we show estimates computed from the
data collected but none of the raw data aggregates.
We adapted an Excel data collection
spreadsheet developed by the NAII Committee. We requested information by
vehicle type (motorcycle; private passenger car, light truck, van, SUV;
commercial for-hire vehicle, other light commercial vehicle, bus/passenger van,
medium/heavy truck) on seven categories of insurance coverage:
1. Bodily injury liability (coverage if the policyholder's vehicle injures
someone; mandatory in most states. In no-fault insurance states, this coverage
compensates losses that exceed the no-fault threshold.). For motorcycles, some
companies separated passenger liability coverage from other bodily injury
coverage.
2. Property damage liability (coverage if the policyholder's vehicle damages or
destroys someone else's property; mandatory in many states)
3. Own medical payments (coverage for the policyholder's own injury treatment
costs up to a modest ceiling, typically $1,000; often mandatory in states
without no-fault insurance)
4. Personal injury protection (no-fault coverage for the policyholder's own
losses up to a modest ceiling, typically $15,000-$25,000; mandatory in some
states)
5. Collision (coverage for damage to the policyholder's vehicle when the
policyholder is at fault in the crash or no one is; typically required by the
lender if vehicle purchase was financed)
6. Comprehensive (coverage for theft or non-crash damage to the policyholder's
vehicle; typically required by the lender if vehicle purchase was financed)
7. Uninsured and underinsured motorist (coverage for injuries to the
policyholder and other occupants of the policyholder's vehicle, as well as the
policyholder's property damage when a driver without insurance is at fault or
when the at-fault driver has too little insurance to fully compensate the
policyholder's losses; mandatory in many states)
For each category, we requested five data items for policies written in 1998
and (separately) in 1999. Coverage in a policy is for a maximum of one year:
1. Earned exposure (the number of vehicles covered by insurance for this risk)
2. Earned premiums (how much policyholders paid for this coverage, net of any
dividends or rebates to policyholders)
3. Incurred losses (the amount paid or reserved for future payment of claims
against the policies, including amounts that will be paid by reinsures)
4. Administrative loss adjustment expenses or ALAE (the amount spent
investigating and paying the claims). ALAE is very narrowly defined here and
averages just 3 percent of premiums earned for liability coverage and 0.2
percent for collision and comprehensive coverage. A.M. Best (2000) also reports
a broader definition of loss adjustment expenses that averages 14.8 percent of
private passenger auto liability premiums earned and 10.5 percent of private
passenger auto property damage premiums earned in 1999. In addition,
commissions and underwriting expenses related to these coverages averaged 24.4
percent and 24.8 percent of premiums earned respectively. We did not study
those expenses.
5. Incurred claim count (the number of damage claims that the insurance paid
for or anticipates paying for as lawsuits and other disputes are resolved)
In some cases, companies were unable to supply a breakdown between incurred
losses and ALAE for motorcycles. By coverage and engine size, we applied data
from companies that supplied a breakdown to decompose the remaining data into
these categories. One company supplied data on premiums written (including funds
that would later be rebated to policyholders) rather than premiums earned. This
company's data were multiplied by the ratio of earned premiums to premiums
written for its aggregate automobile insurance lines from Best's Aggregates and
Averages (A.M. Best and Company 2000).
We have not applied inflation adjusters to any dollar amounts in this report
From the data collected, by vehicle and coverage type, we computed:
1. Claims per 1000 covers (incurred claim count divided by earned exposure,
i.e., the number of claims filed per 1000 policies that offer the specific
coverage)
2. Claim severity (incurred losses divided by incurred claim count, i.e., the
average payments per claim paid)
3. Average loss cost (incurred losses divided by earned exposure, a measure
influenced by both the frequency of claims and claim severity, i.e., losses per
cover)
4. Percent of total losses (by vehicle type and year, incurred losses for each
coverage divided by total incurred losses for all coverages)
5. Loss ratio (the ratio of incurred losses to earned premiums, i.e., the
percentage of premiums that is paid to settle claims)
6. ALAE ratio (the ratio of ALAE to earned premiums, i.e., the percentage of
premiums that is spent to process and investigate claims. This ratio is sometimes
called the Direct Defense and Cost Containment Expense or DDCCE ratio)
In addition, by vehicle type, we computed:
1. Premium per actual policy (the sum of earned premiums divided by policies
written)
2. Premium per all-cover policy (the sum of the premium per cover for all
covers, except the maximum of personal injury protection or medical payments
premiums, since these two coverages would never be purchased simultaneously)
3. Covers per policy (the sum of earned exposures divided by policies written)
4. Claims per 1000 policies (incurred claim count divided by thousands of
policies written)
5. Losses per policy (the sum of incurred losses plus ALAE divided by policies
written)
6. Losses per 1000 vehicle miles (losses per policy divided by thousands of
vehicle miles driven per vehicle as reported in FHWA (2000))
7. Crash losses per 1000 vehicle miles (losses per policy excluding losses on
comprehensive coverage, divided by thousands of vehicle miles driven per
vehicle)
Motorcycle data were decomposed into vehicles in three engine size categories:
less than 750 cc, 750-1000 cc, and more than 1000 cc. The NAII Motorcycle
Insurance Committee members also provided a more limited motorcycle statistical
breakout into three styles: touring, sport bike, and other.
To protect confidentiality, the
number of policies written by vehicle type is not reported here. Additionally,
we report only our computed variables, not the raw exposure, claims, and loss
counts.
4. Motorcycle Insurance Results
We obtained data on 1.1 million motorcycle policies written in 1998 and 1.2
million written in 1999. This represented coverage for 28.5 percent of the
motorcycles registered each year and an unknown but much higher percentage of
insured motorcycles. (In Hawaii, for example, 39 percent of motorcycles are
uninsured (Kim et al. 2002).) Table 1 summarizes the estimates computed from
the data collected about this coverage. In viewing these estimates, it is
important to remember that some companies did not differentiate passenger
liability coverage from other bodily injury liability coverage, instead
offering a single coverage for both.
Among insured motorcycles with coverage
details known for 1999, 14 percent had 750-1000 cc engines, 43 percent had
larger engines, and 43 percent had smaller ones. As Table 1 shows, motorcycles
with engines below 750 cc had fewer claims per 1000 covers. Claim severity rose
with engine size overall and for passenger liability, comprehensive, uninsured
motorist, and to a lesser extent, medical payments/personal injury protection
and collision coverages. Motorcycles above 1000 cc had especially high claim
severity for several coverage categories and overall.
Motorcycle property/casualty liability
insurance covers the costs of injury and property damage that motorcycle riders
inflict on auto occupants, pedestrians, and passengers. Because motorcycles
typically are over-matched in crashes, occupants of other vehicles rarely are
injured by an at-fault motorcyclist. Motorcycle liability insurance, therefore,
generally is inexpensive. Average loss costs dramatically illustrate this
point. Most losses resulted from compensating the motorcyclist's own losses,
with comprehensive and collision coverages accounting for 60 percent of total
losses and uninsured motorist coverage another 20 percent. Liability payments
were quite modest, only 17 percent of the total. This pattern was quite
different from the pattern for personal passenger autos (shown in Table 2),
where liability coverage accounted for 41 percent of losses, collision and
comprehensive another 41 percent, and uninsured motorist protection only 6.5
percent.
Loss Adjustment Expense (LAE) proved a confusing category. Best’s Review (Goch
2000) now reports only what they label DDCCE but formerly called ALAE, a very
constricted subset of expenses related directly to claims adjustment. This
subset excludes the costs of maintaining and quality-controlling a claims
processing capability, as well as related overheads. These indirect costs do
not result directly from the individual claim. Best’s Aggregates and Averages
reports a more expansive version of LAE that appears to include the indirect
costs. Both versions are based on voluntary but virtually complete reporting by
insurers. The more expansive version seems more appropriate for crash costing,
although one could use the constricted version and separately model defense
legal costs. Our intent was to collect an expansive version of LAE but our data
request yielded a constricted version. The important information about ALAE in
Tables 1 and 2, therefore, is that it varies little between types of coverage
or types of vehicles. Thus it is reasonable to apply the annual numbers in
Best’s publications to subgroups.
Table 3 reproduces Best’s data for 1998-1999 auto insurance nationally. For the
four major classes of coverage, it shows premiums earned, the percentage of
premiums earned that goes to cover LAE by constricted and expansive
definitions, the percentage spent on commissions and brokerage fees, and the
percentage devoted to other underwriting expenses. Overall, about 40 percent of
premium dollars earned were used to cover these sales and administrative
expenses. Claims adjustment costs were higher for liability than property
damage claims. Commercial auto policies were sold on a tighter margin than
private passenger policies, sometimes as a loss leader or accommodation
required to capture other more profitable business. Commissions and brokerage
also were larger for commercial policies. In general, auto insurance expenses
exceeded premiums earned. In most years, the private passenger line achieved
marginal profitability through investment gains during the period between when
premiums were collected and when claims were paid.
Accounting for loss adjustment and underwriting expenses (about 37 percent of
earned premiums according to A.M. Best (2000)), the loss ratios in Table 1
suggest insurers lost money on optional motorcycle collision and comprehensive
and on legally mandated uninsured motorist and personal injury protection
coverage. They recouped their losses through profits on legally mandated
liability coverage. Overall, the loss ratio for motorcycle insurance ranged
from 53.4 percent in 1998 to 56.5 percent in 1999. That was better than the 65
percent loss ratio for private passenger auto among survey respondents and in
the auto industry as a whole (as reported by A.M. Best, 2000).
In part the adverse experience on some motorcycle coverages and offsetting
profitability on others resulted from the bifurcated nature of this market. A
small group of writers specialized in motorcycle coverage. Their loss ratios
were balanced between covers, reflecting their expertise in this market. The
second group was companies that wrote motorcycle coverage to accommodate
purchasers of other insurance who wanted a comprehensive source for their
property/casualty or auto insurance needs. These companies did not actively
pursue motorcycle business or cultivate expertise in the market. Their
underwriting and loss adjustment was less refined, their policies were priced
above the specialty writers, their profitability was lower, and their results
were more variable between coverages.
Losses per policy rose dramatically with motorcycle engine size, with premiums
rising proportionately. Touring bikes comprised 10 percent of insured
motorcycles and sport bikes just over 3 percent. Losses were higher for these
motorcycles, in part because they typically have larger engines. Touring cycles
are expensive and tended to be comprehensively insured, with an average of one
additional cover per policy increasing their insurance costs. In contrast,
sport bikes had bad loss records. Despite having fewer coverage’s per policy
than most motorcycles, these vehicles experienced losses per policy that were
1.5 to 2 times those of other motorcycles with large engines and 3 times the
all-motorcycle average.
Between 1998 and 1999, claims per cover rose by 8 percent, driving up total
claims payments despite a stable cost per claim. This rise was observed for all
engine sizes and all coverage’s except medical and comprehensive. It occurred
despite a drop in miles ridden per motorcycle. It may result from an influx of
novice riders; motorcycle registrations grew by 8 percent between 1998 and
1999.
Table 1.
Motorcycle Insurance
Statistics by Engine Size, Selected Companies, 1998-1999
|
|
Claims
Per 1000 Covers
|
Claim
Severity
|
Average
Loss Cost
|
Percent
of Total Losses
|
Loss
Ratio
|
ALAE
Ratio
|
|
Bodily Injury Liability
|
Less than 750 cc
|
1988
|
0.7
|
$14,367
|
$9
|
10.4%
|
19.5%
|
1.8%
|
|
1999
|
0.8
|
$14,385
|
$10
|
10.3%
|
23.7%
|
3.1%
|
|
750-1000 cc
|
1998
|
1.2
|
$15,653
|
$17
|
11.8%
|
26.8%
|
1.7%
|
|
1999
|
1.3
|
$13,651
|
$17
|
10.1%
|
26.4%
|
1.6%
|
|
More than 1000 cc
|
1998
|
1.3
|
$15,105
|
$18
|
10.8%
|
27.6%
|
2.5%
|
|
1999
|
1.4
|
$14,392
|
$18
|
9.8%
|
28.0%
|
2.8%
|
|
Total
|
1998
|
1.0
|
$14,971
|
$14
|
10.8%
|
24.5%
|
2.1%
|
|
1999
|
1.1
|
$14,271
|
$14
|
10.0%
|
26.3%
|
2.7%
|
|
Passenger Liability
|
Less than 750 cc
|
1998
|
0.3
|
$9,556
|
$3
|
1.0%
|
19.8%
|
1.8%
|
|
1999
|
0.4
|
$4,268
|
$1
|
0.4%
|
10.9%
|
1.4%
|
|
750-1000 cc
|
1998
|
0.5
|
$16,799
|
$8
|
1.6%
|
37.2%
|
2.3%
|
|
1999
|
0.6
|
$7,792
|
$5
|
0.8%
|
21.4%
|
1.3%
|
|
More than 1000 cc
|
1998
|
0.8
|
$13,642
|
$10
|
1.4%
|
41.0%
|
3.8%
|
|
1999
|
1.0
|
$15,878
|
$14
|
1.7%
|
54.0%
|
5.3%
|
|
Total
|
1998
|
0.5
|
$12,832
|
$6
|
1.3%
|
32.4%
|
2.8%
|
|
1999
|
0.6
|
$11,193
|
$6
|
1.2%
|
33.5%
|
3.3%
|
|
Property Damage Liability
|
Less than 750 cc
|
1998
|
3.1
|
$1,592
|
$5
|
5.6%
|
15.5%
|
0.0%
|
|
1999
|
3.4
|
$1,629
|
$6
|
5.7%
|
17.3%
|
0.2%
|
|
750-1000 cc
|
1998
|
3.7
|
$1,597
|
$6
|
3.8%
|
13.1%
|
0.1%
|
|
1999
|
4.5
|
$1,806
|
$8
|
4.9%
|
17.3%
|
0.0%
|
|
More than 1000 cc
|
1998
|
3.3
|
$1,497
|
$5
|
2.8%
|
10.7%
|
0.1%
|
|
1999
|
3.8
|
$1,787
|
$7
|
3.6%
|
14.0%
|
0.1%
|
|
Total
|
1998
|
3.3
|
$1,553
|
$5
|
3.8%
|
12.8%
|
0.1%
|
|
1999
|
3.7
|
$1,726
|
$6
|
4.4%
|
15.7%
|
0.1%
|
|
Own Medical Payments
|
Less than 750 cc
|
1998
|
11.7
|
$859
|
$10
|
1.4%
|
22.6%
|
0.3%
|
|
1999
|
12.2
|
$1,094
|
$13
|
1.7%
|
32.5%
|
0.5%
|
|
750-1000 cc
|
1998
|
15.6
|
$957
|
$15
|
1.2%
|
29.1%
|
0.5%
|
|
1999
|
15.5
|
$1,015
|
$15
|
1.2%
|
30.9%
|
0.5%
|
|
More than 1000 cc
|
1998
|
14.7
|
$1,017
|
$15
|
1.1%
|
28.3%
|
0.3%
|
|
1999
|
12.1
|
$1,256
|
$15
|
1.2%
|
28.8%
|
0.5%
|
|
Total
|
1998
|
13.5
|
$949
|
$13
|
1.2%
|
26.2%
|
0.3%
|
|
1999
|
12.6
|
$1,151
|
$14
|
1.3%
|
30.4%
|
0.5%
|
|
Personal Injury Protection
|
Less than 750 cc
|
1998
|
8.8
|
$2,382
|
$21
|
0.8%
|
61.7%
|
1.4%
|
|
1999
|
6.4
|
$1,994
|
$12
|
0.5%
|
31.0%
|
2.5%
|
|
750-1000 cc
|
1998
|
8.4
|
$3,147
|
$25
|
0.6%
|
71.0%
|
2.2%
|
|
1999
|
11.6
|
$2,300
|
$26
|
0.7%
|
70.9%
|
1.2%
|
|
More than 1000 cc
|
1998
|
8.2
|
$3,099
|
$24
|
0.6%
|
69.2%
|
2.8%
|
|
1999
|
9.2
|
$3,577
|
$32
|
0.8%
|
86.2%
|
2.3%
|
|
Total
|
1998
|
8.5
|
$2,791
|
$23
|
0.6%
|
66.4%
|
2.1%
|
|
1999
|
8.3
|
$2,779
|
$22
|
0.7%
|
58.5%
|
2.2%
|
|
Collision
|
Less than 750 cc
|
1998
|
31.8
|
$2,529
|
$80
|
39.0%
|
137.6%
|
0.6%
|
|
1999
|
34.4
|
$2,509
|
$86
|
40.2%
|
142.3%
|
0.4%
|
|
750-1000 cc
|
1998
|
34.1
|
$3,435
|
$117
|
42.0%
|
127.0%
|
0.1%
|
|
1999
|
37.6
|
$3,399
|
$128
|
43.9%
|
129.8%
|
0.2%
|
|
More than 1000 cc
|
1998
|
22.4
|
$3,469
|
$78
|
34.4%
|
70.0%
|
0.1%
|
|
1999
|
24.0
|
$3,504
|
$84
|
35.8%
|
72.5%
|
0.1%
|
|
Total
|
1998
|
27.0
|
$3,098
|
$84
|
37.0%
|
91.8%
|
0.2%
|
|
1999
|
29.1
|
$3,105
|
$90
|
38.4%
|
94.5%
|
0.2%
|
|
Comprehensive
|
Less than 750 cc
|
1998
|
15.2
|
$2,988
|
$44
|
24.5%
|
114.5%
|
3.1%
|
|
1999
|
14.3
|
$2,882
|
$41
|
21.7%
|
101.3%
|
0.8%
|
|
750-1000 cc
|
1998
|
13.3
|
$4,055
|
$54
|
21.3%
|
79.7%
|
0.5%
|
|
1999
|
13.3
|
$4,327
|
$57
|
21.4%
|
81.8%
|
0.7%
|
|
More than 1000 cc
|
1998
|
9.2
|
$6,346
|
$58
|
27.1%
|
68.2%
|
0.6%
|
|
1999
|
9.0
|
$5,972
|
$53
|
23.8%
|
60.9%
|
0.6%
|
|
Total
|
1998
|
11.8
|
$4,518
|
$53
|
25.4%
|
79.1%
|
1.1%
|
|
1999
|
11.3
|
$4,399
|
$49
|
22.8%
|
71.6%
|
0.7%
|
|
Uninsured
Motorist
& Uninsured/
Underinsured
Combined
|
Less than 750 cc
|
1998
|
1.0
|
$16,275
|
$15
|
17.5%
|
47.1%
|
3.0%
|
|
1999
|
1.2
|
$16,374
|
$18
|
19.5%
|
57.4%
|
1.8%
|
|
750-1000 cc
|
1998
|
1.7
|
$16,129
|
$26
|
17.7%
|
67.8%
|
2.4%
|
|
1999
|
1.7
|
$16,874
|
$27
|
17.0%
|
74.1%
|
4.0%
|
|
More than 1000 cc
|
1998
|
1.5
|
$24,637
|
$35
|
21.7%
|
84.5%
|
3.9%
|
|
1999
|
1.8
|
$22,975
|
$39
|
23.3%
|
96.8%
|
2.8%
|
|
Total
|
1998
|
1.3
|
$20,315
|
$25
|
19.8%
|
67.7%
|
3.4%
|
|
1999
|
1.5
|
$19,856
|
$29
|
21.2%
|
78.9%
|
2.6%
|
|
Total
|
Less than 750 cc
|
1998
|
6.2
|
$3,290
|
$20
|
100.0%
|
52.3%
|
1.7%
|
|
1999
|
6.7
|
$3,291
|
$21
|
100.0%
|
57.0%
|
1.5%
|
|
750-1000 cc
|
1998
|
7.6
|
$4,341
|
$32
|
100.0%
|
58.9%
|
1.0%
|
|
1999
|
8.5
|
$4,224
|
$35
|
100.0%
|
62.8%
|
1.2%
|
|
More than 1000 cc
|
1998
|
6.6
|
$5,317
|
$34
|
100.0%
|
52.7%
|
1.3%
|
|
1999
|
7.0
|
$5,279
|
$36
|
100.0%
|
54.6%
|
1.2%
|
|
All Motorcycles
|
1998
|
6.6
|
$4,351
|
$28
|
100.0%
|
53.4%
|
1.4%
|
|
1999
|
7.1
|
$4,331
|
$30
|
100.0%
|
56.5%
|
1.3%
|
Table 2.
Personal Auto Insurance
Statistics by Vehicle Type, Selected Companies, 1998-1999
|
|
Claims
Per 1000 Covers
|
Claim
Severity
|
Average
Loss Cost
|
Percent
of Total Losses
|
Loss
Ratio
|
ALAE
Ratio
|
|
Bodily Injury Liability
|
Car
|
1988
|
15.6
|
$8,056
|
$125
|
24.8%
|
61.9%
|
5.2%
|
|
1999
|
15.0
|
$6,979
|
$105
|
21.5%
|
55.7%
|
5.1%
|
|
Light Truck
|
1998
|
13.9
|
$8,154
|
$114
|
26.1%
|
63.2%
|
4.3%
|
|
1999
|
13.4
|
$7,383
|
$99
|
23.0%
|
59.4%
|
4.0%
|
|
Van
|
1998
|
12.5
|
$8,200
|
$102
|
23.8%
|
56.7%
|
4.5%
|
|
1999
|
11.9
|
$7,344
|
$88
|
21.2%
|
52.5%
|
4.5%
|
|
SUV
|
1998
|
14.8
|
$8,382
|
$124
|
24.8%
|
62.9%
|
4.3%
|
|
1999
|
14.2
|
$7,454
|
$106
|
21.6%
|
57.9%
|
4.0%
|
|
Total
|
1998
|
14.9
|
$8,124
|
$121
|
25.0%
|
61.8%
|
4.9%
|
|
1999
|
14.3
|
$7,140
|
$102
|
21.7%
|
56.3%
|
4.7%
|
|
Property Damage Liability
|
Car
|
1998
|
58.2
|
$1,464
|
$85
|
16.3%
|
71.9%
|
0.2%
|
|
1999
|
59.5
|
$1,460
|
$87
|
17.2%
|
74.2%
|
0.2%
|
|
Light Truck
|
1998
|
59.1
|
$1,607
|
$95
|
20.8%
|
85.2%
|
0.2%
|
|
1999
|
59.2
|
$1,652
|
$98
|
21.7%
|
88.9%
|
0.2%
|
|
Van
|
1998
|
53.5
|
$1,418
|
$76
|
17.1%
|
72.7%
|
0.2%
|
|
1999
|
54.3
|
$1,436
|
$78
|
18.27%
|
76.1%
|
0.2%
|
|
SUV
|
1998
|
61.5
|
$1,583
|
$97
|
18.9%
|
87.7%
|
0.3%
|
|
1999
|
62.2
|
$1,597
|
$99
|
19.8%
|
91.0%
|
0.2%
|
|
Total
|
1998
|
58.4
|
$1,502
|
$88
|
17.4%
|
76.2%
|
0.2%
|
|
1999
|
59.3
|
$1,513
|
$90
|
18.4%
|
79.2%
|
0.2%
|
|
Own Medical Payments
|
Car
|
1998
|
16.3
|
$1,897
|
$31
|
3.7%
|
81.9%
|
1.2%
|
|
1999
|
16.5
|
$1,959
|
$32
|
4.1%
|
90.9%
|
1.2%
|
|
Light Truck
|
1998
|
10.0
|
$1,986
|
$20
|
2.7%
|
52.0%
|
1.0%
|
|
1999
|
10.1
|
$2,100
|
$21
|
2.9%
|
58.8%
|
1.0%
|
|
Van
|
1998
|
12.0
|
$2,165
|
$26
|
3.7%
|
73.5%
|
1.0%
|
|
1999
|
12.0
|
$2,146
|
$26
|
3.9%
|
78.2%
|
1.1%
|
|
SUV
|
1998
|
11.8
|
$2,069
|
$24
|
2.8%
|
63.7%
|
0.9%
|
|
1999
|
12.0
|
$2,136
|
$26
|
3.1%
|
72.2%
|
0.8%
|
|
Total
|
1998
|
14.2
|
$1,946
|
$28
|
3.4%
|
73.5%
|
1.1%
|
|
1999
|
14.3
|
$2,011
|
$29
|
3.7%
|
81.4%
|
1.1%
|
|
Personal Injury Protection
|
Car
|
1998
|
23.8
|
$4,546
|
$108
|
8.3%
|
98.2%
|
4.4%
|
|
1999
|
25.2
|
$3,776
|
$95
|
7.6%
|
91.7%
|
4.8%
|
|
Light Truck
|
1998
|
14.9
|
$4,112
|
$61
|
4.9%
|
63.6%
|
2.3%
|
|
1999
|
15.4
|
$3,541
|
$55
|
4.4%
|
60.9%
|
2.3%
|
|
Van
|
1998
|
17.5
|
$5,235
|
$92
|
8.3%
|
89.9%
|
3.5%
|
|
1999
|
18.4
|
$4,159
|
$77
|
7.1%
|
80.5%
|
4.0%
|
|
SUV
|
1998
|
17.9
|
$5,032
|
$90
|
7.3%
|
80.9%
|
3.2%
|
|
1999
|
19.2
|
$4,637
|
$89
|
7.2%
|
86.3%
|
3.1%
|
|
Total
|
1998
|
21.0
|
$4,602
|
$96
|
7.6%
|
90.0%
|
3.8%
|
|
1999
|
22.1
|
$3,882
|
$86
|
7.0%
|
85.3%
|
4.1%
|
|
Collision
|
Car
|
1998
|
87.3
|
$1,788
|
$156
|
26.3%
|
65.6%
|
0.2%
|
|
1999
|
90.9
|
$1,848
|
$168
|
29.7%
|
71.0%
|
0.1%
|
|
Light Truck
|
1998
|
64.3
|
$1,819
|
$117
|
22.3%
|
56.4%
|
0.1%
|
|
1999
|
66.0
|
$1,952
|
$129
|
25.3%
|
61.9%
|
0.1%
|
|
Van
|
1998
|
71.2
|
$1,959
|
$114
|
23.5%
|
55.5%
|
0.1%
|
|
1999
|
74.1
|
$1,656
|
$123
|
26.5%
|
60.0%
|
0.1%
|
|
SUV
|
1998
|
68.3
|
$2,026
|
$138
|
24.4%
|
51.2%
|
0.1%
|
|
1999
|
70.6
|
$2,153
|
$152
|
28.0%
|
56.5%
|
0.1%
|
|
Total
|
1998
|
79.3
|
$1,802
|
$143
|
25.2%
|
61.2%
|
0.1%
|
|
1999
|
82.0
|
$1,884
|
$154
|
28.4%
|
66.3%
|
0.1%
|
|
Comprehensive
|
Car
|
1998
|
89.4
|
$836
|
$75
|
13.4%
|
60.5%
|
0.3%
|
|
1999
|
87.0
|
$814
|
$71
|
13.2%
|
58.1%
|
0.2%
|
|
Light Truck
|
1998
|
119.1
|
$718
|
$86
|
17.3%
|
73.5%
|
0.3%
|
|
1999
|
117.0
|
$713
|
$83
|
17.3%
|
71.2%
|
0.2%
|
|
Van
|
1998
|
101.5
|
$731
|
$74
|
16.1%
|
71.6%
|
0.2%
|
|
1999
|
99.1
|
$723
|
$72
|
16.2%
|
69.1%
|
0.2%
|
|
SUV
|
1998
|
115.3
|
$754
|
$87
|
16.0%
|
56.3%
|
0.2%
|
|
1999
|
111.5
|
$716
|
$80
|
15.3%
|
52.8%
|
0.2%
|
|
Total
|
1998
|
99.2
|
$788
|
$78
|
14.6%
|
62.9%
|
0.2%
|
|
1999
|
96.9
|
$767
|
$74
|
14.4%
|
60.3%
|
0.2%
|
|
Uninsured
Motorist
& Uninsured/
Underinsured
Combined
|
Car
|
1998
|
6.4
|
$5,635
|
$36
|
7.2%
|
59.6%
|
3.5%
|
|
1999
|
6.4
|
$5,129
|
$33
|
6.8%
|
57.3%
|
3.4%
|
|
Light Truck
|
1998
|
4.6
|
$5,554
|
$25
|
6.0%
|
46.6%
|
2.2%
|
|
1999
|
4.5
|
$4,995
|
$23
|
5.4%
|
43.6%
|
2.1%
|
|
Van
|
1998
|
4.7
|
$6,957
|
$33
|
7.6%
|
55.8%
|
3.0%
|
|
1999
|
4.7
|
$6,057
|
$29
|
6.9%
|
51.2%
|
2.9%
|
|
SUV
|
1998
|
4.5
|
$6,410
|
$29
|
5.7%
|
46.9%
|
2.3%
|
|
1999
|
4.5
|
$5,482
|
$25
|
5.0%
|
42.4%
|
2.3%
|
|
Total
|
1998
|
5.7
|
$5,796
|
$33
|
6.8%
|
55.4%
|
3.1%
|
|
1999
|
5.7
|
$5,216
|
$30
|
6.3%
|
52.3%
|
3.0%
|
|
Total
|
Car
|
1998
|
44.1
|
$2,001
|
$88
|
100.0%
|
66.7%
|
2.1%
|
|
1999
|
44.7
|
$1,903
|
$85
|
100.0%
|
66.3%
|
2.0%
|
|
Light Truck
|
1998
|
43.4
|
$1,782
|
$77
|
100.0%
|
64.8%
|
1.6%
|
|
1999
|
43.5
|
$1,749
|
$76
|
100.0%
|
65.4%
|
1.4%
|
|
Van
|
1998
|
41.6
|
$1,784
|
$74
|
100.0%
|
63.2%
|
1.8%
|
|
1999
|
41.8
|
$1,705
|
$71
|
100.0%
|
62.8%
|
1.7%
|
|
SUV
|
1998
|
45.2
|
$1,926
|
$87
|
100.0%
|
61.4%
|
1.5%
|
|
1999
|
45.3
|
$1,867
|
$84
|
100.0%
|
61.7%
|
1.4%
|
|
Total
|
1998
|
43.9
|
$1,933
|
$85
|
100.0%
|
65.4%
|
1.9%
|
|
1999
|
44.3
|
$1,853
|
$82
|
100.0%
|
65.2%
|
1.8%
|
Table 3.
Losses
and Loss and Expense Ratios by Kind of Auto Insurance, Nationwide, 1998-1999
|
Kind
of Insurance
|
Vehicle
Type
|
Year
|
Premiums
Earned
|
Loss
Ratio
|
LAE
(Narrowly Defined)
|
LAE
(Broadly Defined)
|
Commission
& Brokerage
|
Other
Under-writing
|
Total
LAE & Under-writing
|
|
Liability
|
Private
Passenger
|
1998
|
70,488,746
|
61.6%
|
NA
|
14.7%
|
9.0%
|
14.5%
|
38.3%
|
|
1999
|
69,541,977
|
66.5%
|
4.6%
|
14.8%
|
8.9%
|
15.5%
|
39.2%
|
|
Commercial
|
1998
|
12,736,277
|
72.1%
|
NA
|
13.6%
|
13.0%
|
17.2%
|
43.9%
|
|
1999
|
12,565,725
|
72.3%
|
7.7%
|
15.8%
|
14.5%
|
17.5%
|
47.9%
|
|
|
|
|
|
|
|
|
|
|
|
Physical
Damage
|
Private
Passenger
|
1998
|
45,375,351
|
63.7%
|
NA
|
10.2%
|
9.7%
|
14.7%
|
34.6%
|
|
1999
|
47,981,924
|
63.4%
|
0.7%
|
10.5%
|
9.1%
|
15.7%
|
35.3%
|
|
Commercial
|
1998
|
5,127,653
|
69.4%
|
NA
|
8.8%
|
14.2%
|
16.1%
|
39.1%
|
|
1999
|
5,191,970
|
69.8%
|
0.9%
|
10.0%
|
15.5%
|
17.3%
|
42.8%
|
All numbers are percentages of premiums earned.
NA = not available
Source: Quoted or computed from Best's Aggregates and Averages - Property
Casualty, 2000 Edition
5. Insurance for Other Private Passenger
Vehicles
The survey responses described more than 25 percent but less than 50 percent of
all private passenger insurance premiums. These responses appeared to be highly
representative of the industry as a whole. The loss ratio for the responding
companies averaged 65.2 percent, essentially the same as the 66.3 percent for
the industry (A.M. Best 2000). ALAE for liability coverage averaged 3 percent,
identical to the all-industry percentage (Goch, 2000).
Table 4 shows the percentage distribution of
policies between vehicle types. Passenger cars comprised almost 60 percent of
the covered vehicles. Sport utility vehicles (SUVs) were rising in popularity,
reaching 13 percent of covered vehicles in 1999. Light trucks were 19 percent
of covered vehicles and vans were 9 percent.
Table 2 presents insurance statistics by
coverage for personal passenger auto other than motorcycles. Property damage
liability and collision claims each are four to five times as frequent as
bodily injury liability claims. Claims under PIP and own medical also are more
common than under bodily injury liability. In part, that is because bodily
injury liability claims in no-fault states only are filed for losses above the
PIP limit, typically $15,000-$25,000. In states that do not adhere to a
no-fault regime, coverage for own medical payments is designed to assure that
no one hesitates to treat an injured driver because (s)he might be unable to
pay the bill. Policy limits for this coverage are established legislatively and
low, perhaps $500 to $5,000 depending on the state. Predictably, bodily injury
claims are much more severe than PIP or own medical payments claims and account
for double the total losses. Claims under uninsured motorist coverage also tend
to be severe.
Intriguingly, bodily injury liability, PIP,
uninsured motorist, and total claim severity fell from 1998 to 1999. It is
possible that this fall resulted from tighter medical cost management or
declining crash severity. Judging by loss ratios, own medical payments and PIP
coverage were less profitable than most coverages. ALAE was substantially lower
for property damage claims than for other claims.
Table 4.
Percentage Distribution of
Personal Passenger Auto Insurance Policies
by Vehicle Type
and Year, for Selected Companies, Excluding Motorcycle
|
Vehicle Type
|
1998
|
1999
|
|
Car
|
59.95%
|
58.71%
|
|
Light Truck
|
18.82%
|
18.94%
|
|
Van
|
8.95%
|
9.04%
|
|
SUV
|
12.28%
|
13.31%
|
|
Total
|
100.00%
|
100.00%
|
6. A Further Comparison of Motorcycle and
Other Private Passenger Auto Insurance
Table 5 compares the coverage’s included in typical motorcycle and auto
insurance policies. They differ radically. Motorcycles were covered by much
less comprehensive insurance than other vehicles.
Policies on other vehicles virtually all
included coverage for bodily injury liability, property damage liability,
uninsured motorist, and one of PIP or own medical expenses. This broad range of
coverage was not entirely due to legislative mandates since some states (e.g.,
Mississippi) did not require drivers to carry insurance. Furthermore, 90.8
percent of policies included comprehensive coverage and 86.1 percent included
collision coverage. Our survey, however, did not include insurers that
primarily cover high-risk drivers, so collision coverage may be less common in
the overall insurance pool.
Table
5.
Percentage
of Policyholders with Different Coverage’s,
Motorcyclists versus Other Motorists, Selected
Companies, 1999
|
Coverage
|
Motorcycles
|
Other
Vehicles
|
|
Bodily Injury Liability
|
87.1%
|
99.6%
|
|
Passenger Liability
|
24.1%
|
99.6%*
|
|
Property Damage Liability
|
85.4%
|
96.0%
|
|
Own Medical Expenses
|
11.5%
|
60.3%
|
|
Personal Injury Protection
|
3.8%
|
37.9%
|
|
Collision
|
52.3%
|
86.1%
|
|
Comprehensive
|
56.8%
|
90.8%
|
|
Uninsured Motorist
|
90.6%
|
99.9%
|
* = Included in bodily injury liability
Bodily injury liability, property damage liability and uninsured motorist
coverage were included in 85 percent to 90 percent of motorcycle insurance
policies. Personal injury protection or own medical expense coverage was
extremely uncommon in the motorcycle market. David Large, an executive in Guide
One Insurance's motorcycle program, reports (personal communication with Ted
Miller, July 27, 1998) that other drivers are at fault in more than 75 percent
of motorcycle crashes. Motorcyclists have successfully argued it is unfair to
shift costs from auto drivers to motorcyclists. Consequently, legislatures
typically have exempted motorcyclists from no-fault laws and not required them
to purchase no-fault personal injury protection (PIP) coverage or even own
medical payments coverage. In Kentucky and Texas, however, recent laws require
that motorcyclists carry coverage for their medical costs, regardless of who is
at fault, if they wish to ride undeleted. Our survey revealed that some
insurers responded to this requirement by offering optional PIP coverage for
motorcyclists in these states. Just over half of motorcycle policies include
collision and comprehensive coverage.
Comparing Tables 1 and 2 reveals that the average severity of medical payment and
PIP claims was substantially lower for motorcycles than for other personal
passenger vehicles. Conversely, the average bodily injury claim against a
motorcycle was almost twice as severe as one against other personal passenger
vehicles. This finding is especially surprising since policies on other
vehicles were much more likely to include no-fault PIP coverage that shifted
low-severity claims away from bodily injury coverage. The reasons for the
observed differences are unknown. One probable contributor is a heavier
concentration of pedestrians and motorcycle passengers among bodily injury
claims against motorcycles. Indeed, Mr. Large reports that many states only
require motorcyclists to purchase bodily injury liability protection covering
those groups.
Average collision claim severity (losses per claim) for motorcycles was 1.65
times the average severity for other private passenger vehicles ($3,105 versus
$1,884 in 1999, from Tables 1 and 2). This differential is especially notable
since autos typically cost more than motorcycles. Claim severity varied
minimally between other types of private passenger vehicles.
When comparing claims frequencies and average loss costs between motorcycles
and other personal passenger vehicles, it is important to remember that other
passenger vehicles travel 4.6 times as many miles (FHWA 2000). If these two
vehicle types were equally safe, claims per 1000 covers would be 4.6 times
greater for the other vehicles than for motorcycles. With this adjustment, for
bodily injury liability claims (including passenger injury liability claims in
the motorcycle total), the motorcycles experienced slightly fewer liability
claims per 1000 covers than other vehicles. They experienced far fewer property
damage liability claims, many more medical payments claims, modestly more PIP
claims, and comparable numbers of uninsured motorist claims.
Table 6 presents comparative statistics at the policy level rather than the
individual cover level. As Table 5 illustrated, motorcycle insurance policies
were narrow, averaging fewer covers than other policies. Motorcycle insurance
policies also had lower premiums; they cost much less than other private
passenger insurance policies. The premium difference arose not only because
motorcycle policies included less covers but because motorcycles traveled an
average of 2,600 miles annually while other vehicles traveled 11,700 miles.
Table 6.
Statistics About Private
Passenger Auto Insurance Policies by
Vehicle Type,
Selected Companies, 1998-1999
|
|
Year
|
Covers per Policy
|
Premium per Actual Policy
|
Premium per All-Cover Policy
|
Claims per 1000 Policies
|
Losses per Policy
|
Losses per 1000 Miles
|
Crash Losses* per 1000Miles
|
|
Less than 750 cc Motorcycle
|
1998
|
3.9
|
$150
|
$273
|
23.9
|
$79
|
NA
|
NA
|
|
1999
|
3.9
|
$152
|
$270
|
26.3
|
$87
|
NA
|
NA
|
|
750-1000 cc Motorcycle
|
1998
|
4.0
|
$222
|
$387
|
30.2
|
$131
|
NA
|
NA
|
|
1999
|
4.0
|
$231
|
$395
|
34.4
|
$145
|
NA
|
NA
|
|
More than 1000 cc Motorcycle
|
1998
|
4.3
|
$284
|
$440
|
28.2
|
$150
|
NA
|
NA
|
|
1999
|
4.3
|
$291
|
$446
|
30.2
|
$159
|
NA
|
NA
|
|
All Motorcycles
|
1998
|
4.1
|
$216
|
$368
|
26.5
|
$116
|
$44
|
$33
|
|
1999
|
4.1
|
$223
|
$372
|
29.1
|
$126
|
$49
|
$38
|
|
|
|
|
|
|
|
|
|
|
Car
|
1998
|
5.7
|
$757
|
$853
|
252.2
|
$520
|
$44
|
$38
|
|
1999
|
5.7
|
$735
|
$825
|
255.8
|
$501
|
$42
|
$37
|
|
Light Truck
|
1998
|
5.5
|
$657
|
$765
|
239.1
|
$437
|
$36
|
$30
|
|
1999
|
5.5
|
$644
|
$744
|
240.8
|
$430
|
$36
|
$30
|
|
Van
|
1998
|
5.8
|
$680
|
$754
|
240.8
|
$442
|
$36
|
$31
|
|
1999
|
5.8
|
$658
|
$728
|
242.3
|
$425
|
$36
|
$30
|
|
SUV
|
1998
|
5.8
|
$816
|
$906
|
260.3
|
$514
|
$42
|
$36
|
|
1999
|
5.8
|
$792
|
$873
|
261.8
|
$499
|
$42
|
$35
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
1998
|
5.7
|
$738
|
$835
|
249.7
|
$497
|
$42
|
$36
|
|
1999
|
5.7
|
$718
|
$808
|
252.5
|
$481
|
$40
|
$35
|
|
All Private Passenger Auto
|
1998
|
5.6
|
$724
|
NA
|
244.0
|
$487
|
$41
|
$36
|
|
1999
|
5.6
|
$704
|
NA
|
246.4
|
$471
|
$40
|
$35
|
* = Excludes comprehensive
Differences in miles traveled primarily
affect crash-related risk. Breaking down the premium data in more detail than
Table 6, premiums for comprehensive coverage against theft, vandalism, and
other non-crash losses, across all policyholders, averaged $40 for motorcycles
and $110 for other vehicles. Among purchasers, premiums for comprehensive
coverage averaged $70 and $125 respectively. The 1.8 ratio of premiums for
comprehensive coverage of other vehicles versus motorcycles (125/70) is greater
than the 1.5 ratio of average loss costs (74/49, from Tables 1 and 2). Thus,
this coverage is relatively less costly for motorcycles than other vehicles.
Motorcycle insurance premiums for crash-related coverage averaged $180 per
policy compared with $620 per policy for other private passenger vehicles.
Motorcyclists tend to buy policies that cover less risks than other drivers.
Premiums for a policy that included all the crash-related coverages available
(with the more costly of medical payments or personal injury protection) would
average $300 for motorcycles and $700 for other private passenger autos.
Because motorcycles typically are driven less than other private passenger
vehicles, these lower premiums for motorcycles are misleading. Per 1000 vehicle
miles traveled, premiums earned in 1999 averaged $87 for narrow motorcycle
policies and $61 for broader policies for other vehicles. Thus, motorcycle
coverage is expensive relative to coverage on other private passenger vehicles.
The higher price of motorcycle policies did not result from worse loss
experience. Compensated crash-related losses per thousand miles driven in
1998-1999 were comparable for motorcycles and other private passenger vehicles,
with both averaging $35.50. Goch (2000) suggests auto insurance premiums were
untenably low in 1999. The auto insurers lost money. Our data indicate that
problem did not extend to the motorcycle market, which probably broke even or
yielded a modest profit. As Tables 1 and 2 showed, the loss ratio for
motorcycles averaged 55 percent in 1998-1999, well below the 67 percent average
for other vehicles. If auto insurance premium adjustments return this line to profitability,
premiums might rise into the range in the motorcycle insurance market. Over
even a 20-year time horizon, however, auto liability insurance often has been a
loss leader for property-casualty insurers.
The finding that motorcycles and other private passenger vehicles have
comparable crash-related loss costs per thousand miles driven is strongly
influenced by the narrower coverage in a typical motorcycle policy. If all
policies included broad coverage, losses per thousand miles driven would have
been $59.50 for motorcycles and $37.50 for other vehicles. These estimates
assume each policy would include only one of own medical payments or PIP, with
the actual percentage split between these two coverage’s preserved. Even these
estimates are not completely comparable because motorcyclists are more likely
than other motorists to have own medical payments coverage rather than more
costly PIP coverage; PIP has a higher payment maximum for the insured’s own
injury losses. Policy limits on own medical also may be lower on motorcycle
than other private passenger vehicle policies, a distinct possibility given
that own medical payments per claim average half as large for motorcyclists as
other vehicle operators.
A final notable aspect of Table 5 is the variation in claims experience between
vehicle types. Light trucks and vans had 10 percent lower losses per policy
(and proportionately lower premiums) than cars or SUVs. Vans sustained slightly
less property damage per claim (collision loss severity in Table 2) than other
vehicles; SUVs sustained slightly more damage than other vehicles. Light truck
owners bought slightly less comprehensive coverage than other vehicle owners.
Their loss experience per 1000 vehicle miles of travel was comparable to vans
but better than the loss experience for cars and SUVs.
7. Commercial Vehicle Insurance
The companies surveyed for this study were selected because they were the
largest writers of private passenger vehicle or motorcycle insurance. They were
not, however, among the largest writers of commercial vehicle insurance.
Indeed, the respondents collectively account for less than 5 percent of
commercial vehicle premiums. The survey should be viewed as a pilot effort for
this population. It proved the data can be obtained and suggests ways to
organize it, but the information collected probably is not representative. In
particular, the for-hire vehicle category, intended to capture taxicabs and
limousines, proved unclear and difficult for respondents, forcing us to aggregate
information on these vehicles with light personal commercial vehicles.
The most useful information from this segment
of the survey was on the ratio of property damage payments per collision claim
between categories of vehicle types: light personal and for hire vehicles.
buses/passenger vans, and medium/heavy trucks. The ratios lend insight into the
relative vehicle damage when each of these three vehicle types is
crash-involved. The average payments of $4,300 to heavy truck owners under
their collision coverage were 2.15 times average payments to owners of other
commercial vehicles. Payments under collision coverage for light commercial
vehicles and buses/vans averaged about $2,000 (comparable to or slightly above
average payments per collision claim under personal passenger vehicle
insurance). Since deductibles on collision coverage probably were similar
across all types of commercial vehicles, the property damage cost for a
crash-involved medium/heavy truck probably was about double the property damage
cost for other crash-involved vehicles ($4,600 versus $2,300 if we assume a
$300 average deductible). Average property damage costs for crash-involved
buses, however, did not exceed passenger vehicle property damage costs (a
finding consistent with the suggestion by Zaloshnja and Miller (2000) that
low-cost, presumably low-speed bus crashes are reported to police more often
than other low-cost crashes). These findings can be used to improve current
property damage cost estimates for medium/heavy trucks.
8. Who Pays?
The insurance data yielded critical factors for estimating the breakdown
between cost categories of crash costs compensated by auto insurers. They
allowed computation of five multipliers for use with data from the annual
Best's Aggregates and Averages. These multipliers were computed separately for
private passenger and commercial insurance. Following Best’s, the private
passenger category includes motorcycles. We show motorcycle-specific
percentages as well. The multipliers are:
1. The percentage of motor vehicle liability loss costs that compensate bodily
injury. In this computation, we applied the percentage split between bodily
injury and property damage liability to decompose uninsured motorist loss
costs.
2. The percentage of motor vehicle liability loss costs that compensate
property damage
3. The percentage of motor vehicle property damage loss costs that compensate
collision damage (as opposed to theft-related damage, for example)
4. Internal costs, computed as the percentage of motor vehicle liability loss
costs that compensate costs paid by the insurance of at-fault drivers (or by
the driver's own insurance in crashes where no one was at fault). In separating
internal from external costs, we assumed that drivers were at fault for 50 percent
of multi-vehicle crash costs paid by personal injury protection and for all
single vehicle crashes. The split of costs between single and multi-vehicle
crashes by vehicle type came from Miller, Levy, et al. (1998).
5. External costs, computed as the percentage of motor vehicle liability loss
costs that compensate costs paid by the driver's insurance when another driver
was at fault
Table 7 shows average multipliers for 1998-1999. The multipliers to split out
crash-related property damage are virtually identical for personal and
commercial lines. Roughly 36 percent of total private passenger and commercial
auto liability loss costs and 65 percent of total property damage loss costs
compensated crash-related property losses. Crash-related property damage compensated
by private passenger and commercial motor vehicle insurance totaled $39,777
million in 1998 and $43,944 million in 1999. Bodily injury losses compensated
by motor vehicle insurance totaled $34,135 million in 1998 and $34,684 million
in 1999.
Commercial insurance was more heavily oriented toward internal cost
compensation than private passenger insurance was (88.9 percent versus 84.7
percent of loss costs). Internal crash costs compensated by private passenger
and commercial motor vehicle insurance totaled $65,698 million in 1998 and
$70,157 million in 1999, about eight times the compensated external costs of
$8,213 million in 1998 and $8,471 million in 1999.
Table 7.
Percentage Multipliers for
Breaking Down Annual Insurance Loss Cost Data
into Losses by
Cost Category and into Internal vs. External Costs
|
Private Passenger *
|
Commercial
|
Motorcycle
|
|
Percent
liability = bodily injury
|
63.2%
|
64.7%
|
75.2%
|
|
Percent
liability = property damage
|
36.8%
|
35.3%
|
24.8%
|
|
Percent
property damage = collision damage
|
64.8%
|
64.0%
|
61.0%
|
|
Percent
liability = internal costs
|
84.7%
|
88.9%
|
45.0%
|
|
Percent
liability = external costs
|
15.3%
|
11.1%
|
55.0%
|
* = Includes motorcycles
and other private passenger vehicles.
Note: Computed from 1998 and 1999 data from selected insurers.
Motorcycle insurance data contrasts markedly
with the pattern for other vehicles. Motorcycles cause less property damage
than bodily injury, with 75 percent rather than 63 percent of liability costs
related to bodily injury. Because more than half of motorcycle liability
payments are under uninsured motorist coverage, much of the motorcyclist’s
liability insurance bill goes to pay costs imposed by other at-fault drivers.
Only an estimated 45 percent of motorcyclists’ liability payments cover the costs
of their at-fault crashes. In contrast 85percent to 89 percent of liability
payments for other vehicles cover the costs of their at-fault crashes.
Premiums earned per private passenger liability policy averaged $431 in 1998
and $409 in 1999. The comparable figures for private passenger auto property
damage were $342 and $341. We divided these numbers into total premiums earned
as reported in Best's Aggregates and Averages to estimate the total number of
insured private passenger vehicles. We followed a similar procedure with the
relatively sparse commercial insurance data that we were able to collect. We
summed the insured private passenger and commercial vehicles, then divided by
the total number of registered vehicles from FHWA (2000).
Those calculations yield estimates that 87 percent of motor vehicles had
liability insurance in 1998 and 88 percent had it in 1999. Comparable
percentages for property damage coverage were 71 percent and 72 percent. By
comparison, the Insurance Research Council (2001) estimates that insured
motorists caused 86 percent of crashes where an insured private passenger
vehicle occupant was injured; uninsured motorists caused the remaining 14
percent. Their estimate was computed completely differently from ours. The
percentage uninsured is the ratio of injury claims under uninsured motorist
coverage to bodily injury liability claims.
If we assume motorcycles are insured at the same rate as other private
passenger vehicles, motorcycle insurance claims paid would total $336 million
in 1998 and $400 million in 1999. The estimated 19 percent growth between years
results primarily from an 8 percent rise in claims per cover and an 8 percent
growth in registered motorcycles, with inflation at just 2 percent and the
percentage of passenger vehicles insured rising by 1 percent. These claims
payment estimates are extremely tenuous. Insured motorcyclists buy less
comprehensive coverage than other motorists, so they also may be less likely to
buy insurance at all.
Roughly 11 percent of auto liability loss costs and 61 percent of auto property
damage loss costs compensated crash-related property damage. The percentage of
liability costs that compensate property damage rather than bodily injury is
much lower for motorcycles than for other passenger vehicles because
motorcycles weigh less and thus cause less property damage. Motorcycle
insurance compensated about $155 million in bodily injury losses, $161 million
in crash-related property damage, and $84 million in theft, vandalism, and
other non-crash losses in 1999. The comparable figures for 1998 were $128
million, $129 million, and $79 million.
9. Conclusion
Both insured motorcycles and other private passenger vehicles experienced
$35.50 in crash-related claims per thousand miles traveled in 1998-1999. Legal
and lender mandates force most motorists to insure against a broad range of
risks. Motorcycles, however, have less insurance mandates. They typically
insure against fewer risks. If they were as broadly insured as autos, their
claims costs per mile traveled would have been almost 1.6 times average auto
claims costs. Average collision losses per claim varied little between vehicle
types, except that medium/heavy truck claims were twice as large as claims for
other vehicles and motorcycle claims were 65 percent larger. Compared to other
private passenger vehicles, motorcycles also had worse loss experience on
theft, vandalism, and other non-crash risks.
Per thousand miles traveled, insurance coverage cost $87 for a motorcycle but
just $61 for other private passenger vehicles. In aggregate, pricing for
motorcycle coverage was commensurate with loss experience. Liability coverage,
however, might have been overpriced and property damage coverage under priced.
Profits on motorcycle liability coverage offset property damage coverage
losses. In contrast, insurers lost money due to the under pricing of other auto
policies in 1998-1999. In interpreting these results, it is important to
remember that liability insurance largely pays for bodily injury to others
injured by the insured, not to the insured personally. Thus, for example, when
a motorcyclist chooses against wearing a helmet, any resulting rise in
insurance claims primarily will be against the insurance of other at-fault
motorists.
Among insured motorcycles with coverage details known for 1999, 14 percent had
750-1000 cc engines, 43 percent had larger engines, and 43 percent had smaller
ones. Insured motorcycles with engines below 750 cc had fewer claims. Claim
severity rose with engine size. Motorcycles above 1000 cc had especially high
claim severity.
Losses per policy rose dramatically with motorcycle engine size, with premiums
rising proportionately. Touring bikes comprised 10 percent of insured
motorcycles and sport bikes just over 3 percent. Losses were higher for these
motorcycles, in part because they typically have larger engines. Touring cycles
also are expensive and tended to be comprehensively insured. Sport bikes,
however, had bad loss records. Despite having fewer coverages per policy than
most motorcycles, these vehicles experienced losses per policy that were 1.5 to
2 times those of other motorcycles with large engines and 3 times the
all-motorcycle average.
Roughly 36 percent of motor vehicle liability loss costs and 65 percent of
motor vehicle property damage loss costs compensated crash-related property
damage. The comparable figures for motorcycles were 11 percent and 61 percent.
In 1999, motor vehicle insurance compensated an estimated $43,944 million in
crash-related property damage and $34,684 million in bodily injury losses. Of
this amount, motorcycle insurance paid for roughly $161 million in
crash-related property damage and $155 million in bodily injury losses.
Because more than half of motorcycle liability payments are under uninsured
motorist coverage, much of the motorcyclist’s liability insurance bill goes to
pay costs imposed by other at-fault drivers. Internal crash costs compensated
by insurance totaled $70,157 million in 1999, about eight times the compensated
external costs of $8,471 million. Only an estimated 45 percent of
motorcyclists’ liability payments cover the internal costs of their at-fault
crashes. In contrast 85 percent to 89 percent of liability payments for other
vehicles cover their internal costs.
This project yielded data that will greatly enhance future NHTSA crash costing.
These data are much different than those collected in 1988. Increasing
computerization and an improved data collection strategy make them more
detailed, on point, and precise. Supplying a data spreadsheet to the companies
surveyed proved a very useful data collection tool. NAII's involvement as an
intermediary also increased the comfort of at least one company with releasing
data. At the same time, some changes would be appropriate when similar data
next are collected. First, we do not recommend collecting ALAE; Best’s data
appear to be adequate. Second, more consultation with major writers is needed
to refine the commercial vehicle types. Third, it currently would be desirable
to gather further data on commercial coverage and on auto insurance coverage
offered by assigned risk plans and other large writers of insurance for
high-risk drivers. Fourth, in the future, simply breaking personal auto into
car, light truck/van/SUV, and motorcycle may adequately differentiate vehicle
types. Finally, a simpler data request that collapsed some covers might improve
the response rate. Some insurers could not produce some of the detailed data we
desired.
