For those in the insurance industry and those who observe it, the reasons behind the poor results for personal auto in recent years are no mystery: more cars on the road driving more miles, higher medical costs, higher repair costs for newer vehicles and — while difficult to estimate its precise effect — distracted driving.

The degree of impact these factors have had on frequency and severity trends, however, has perhaps caught many insurers off guard. Jim Lynch, chief actuary and vice president of research and information services at the New York City-based Insurance Information Institute, says the industry enjoyed a long period of low claims frequency and mild severity. As the U.S. emerged from the Great Recession, claims frequency began to increase. Insurers reacted by raising rates, but then, more recently, severity spiked.

Frequency & severity punches

As Lynch puts it, the industry was “hit from the left” on frequency, began to recover, but then hit with a “big roundhouse from the right” with severity.

The increase in frequency stems mostly from people returning to work in the (albeit slow) economic recovery. Lynch notes about 40 percent of miles driven occur during daily commutes, with many accidents occurring during rush hour. During the recession, as people lost jobs, fewer cars were on the road — a trend that's reversed in recent years. Lower gas prices have also encouraged drivers to hit the road more often. The result: frequency increased by more than 7 percent in the three years from 2013 to 2015, according to an October 2016 Insurance Information Institute (I.I.I.) white paper, “Personal Automobile Insurance: More Accidents, Larger Claims Drive Costs Higher.”