High Fuel Costs Benefit Auto Insurers
August 25, 2008
The price of crude oil, which has been reaching unprecedented heights throughout 2008, has harmed many businesses in America. However, one type business has benefitted from the high costs of fuel in the US: the automotive insurance provider.
The US Department of Transportation reports that US the amount of miles covered by US drivers during the month of April, 2008 decreased by 1.4 billion, as compared to April 2007. During March of 2008, American motorists covered 4.3% fewer miles, as compared to March of 2007. That percentage represents the biggest annual decrease in miles driven by US motorists since 1942, when the US Department of Transportation started keeping track of this figure in the first place.
These decreases, clearly prompted by the rising costs of gas, have yielded fewer accidents on the road. Fewer accidents result in fewer demands for money placed on auto insurance providers. Allstate, one of the biggest companies to dominate the American automotive insurance market, reported yesterday having received 4.2% fewer claims resulting from property-destroying vehicular accidents during the second quarter of 2008. Additionally, fewer policyholders have been filing claims for injuries received during the course of automotive accidents–since 2007, that figure has decreased by 7.6%.
On the stock market, the price of Allstate shares has decreased by 12% during 2008. However, the company is doing significantly better than the Standard & Poor index for insurance companies as a whole, whose value in 2008 decreased by a total of 27%. Meanwhile, the shares of Allstate’s rival auto insurance provider, Progressive, have gone up by over 4% during the course of the year. The shares of State Auto Financial Corp. have gone up by 0.4%.
Finance expert Bijan Moazami expects auto insurance companies’ success to continue as long as fuel costs continue to rise. “If gas prices remain high and economic activity slowth further,” he wrote today, “we believe that improved auto-loss trends will continue in the future, leading to stronger underwriting profitability… for auto-insurance stocks.”
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