Personal Automobile: Cost Drivers, Pricing, and Public Policy

Traditional actuarial pricing procedures have focused on pre-accident driver attributes, vehicle characteristics, and garaging location in an effort to explain personal automobile loss cost "drivers." Although these traditional factors are important for statewide ratemaking in a static environment, they account for only part of the influences on auto insurance loss costs. This paper draws on the industry research of the past fifteen years to present a more comprehensive four-dimensional framework for understanding auto insurance loss costs, comprising factors grouped into the following categories: (1) pre-accident driver attributes and vehicle characteristics; (2) the external environment, such as road conditions and traffic density; (3) compensation systems, such as tort liability versus no-fault; and (4) post-accident factors, such as claimant characteristics, medical providers, and attorney representation.