© 2016 Amica Mutual Company, Lincoln, Rhode Island. All Rights Reserved. The Amica name, logo and all related names, logos, product and service names, designs and slogans are trademarks of the Company or its affiliates or licensors. You must not use such marks without prior written permission from Amica.

Emerging Cost Drivers in Auto Insurance

Federal Advisory Committee on Insurance January 5, 2017

Source: Lifehack Quotes

6%

11%

0%

2%

4%

6%

8%

10%

12%

DPW Direct Losses

Changes 2015 Q1 ‒ 2016 Q2

PP Auto Liability

Perception vs. Reality

Source: PCI; SNL Financial

Perception: 70% of consumers think auto accidents are declining

Reality:

Strong correlations • Traffic congestion • Alcohol, speeding, distracted driving • Miles driven/employment

Other frequency factors • More older and younger drivers • Weather/road conditions • Use of marijuana and opioids

Other severity factors • Vehicle technology • Medical costs • Speed limits

Multitude of Factors ‒ Economy, Society and Technology

Economy

2

4

6

8

10

12

14

16

18

Jan00

Jan01

Jan02

Jan03

Jan04

Jan05

Jan06

Jan07

Jan08

Jan09

Jan10

Jan11

Jan12

Jan13

Jan14

Jan-15

Jan-16

"Headline" Unemployment Rate U-3

Unemployment + UnderemploymentRate U-6

Unemployment and Underemployment Rates

Source: US Bureau of Labor Statistics; Insurance Information Institute.

Unemployment was 4.9% in

August 2016. 4.5% to 5.5% is “normal.”

U-6 was 9.7% in August 2016.

U-6 went from 8.0% in March 2007 to 17.5% in October 2009

For U-6, 8.0% to 9.5% is “normal.”

18%

16%

14%

12%

10%

8%

6%

4%

2%

110

112

114

116

118

120

122

124

2003

.120

03.2

2003

.320

03.4

2004

.120

04.2

2004

.320

04.4

2005

.120

05.2

2005

.320

05.4

2006

.120

06.2

2006

.320

06.4

2007

.120

07.2

2007

.320

07.4

2008

.120

08.2

2008

.320

08.4

2009

.120

09.2

2009

.320

09.4

2010

.120

10.2

2010

.320

10.4

2011

.120

11.2

2011

.320

11.4

2012

.120

12.2

2012

.320

12.4

2013

.120

13.2

2013

.320

13.4

2014

.120

14.2

2014

.320

14.4

2015

.120

15.2

2015

.320

15.4

2016

.120

16.2

24.0

24.5

25.0

25.5

26.0

26.5

27.0

27.5

28.0

28.5

Full-time Part-time

Full-time vs. Part-time Employment 2003-2016

Data are seasonally-adjusted. Sources: US Bureau of Labor Statistics; US Department of Labor; Insurance Information Institute.

Full time, millions

Part-time, millions

Recession shifted employment growth from

full-time to part-time

Pre-recession, most new jobs were full-time

New full-time peak

0.5%1.0%1.5%2.0%2.5%3.0%3.5%4.0%4.5%5.0%

Mar

-07

Jun-

07

Sep-

07

Dec

-07

Mar

-08

Jun-

08

Sep-

08

Dec

-08

Mar

-09

Jun-

09

Sep-

09

Dec

-09

Mar

-10

Jun-

10

Sep-

10

Dec

-10

Mar

-11

Jun-

11

Sep-

11

Dec

-11

Mar

-12

Jun-

12

Sep-

12

Dec

-12

Mar

-13

Jun-

13

Sep-

13

Dec

-13

Mar

-14

Jun-

14

Sep-

14

Dec

-14

Mar

-15

Jun-

15

Sep-

15

Dec

-15

Mar

-16

Jun-

16

Job switchers Job stayers Core PCE

Wages Have Risen Faster Than Inflation

*Seasonally adjusted; year-over-year; Shaded area indicates recession. Sources: NBER (recessions); https://www.frbatlanta.org/chcs/wage-growth-tracker.aspx?panel=1 ; I.I.I.

Y-o-Y Change Wage growth accelerating

The Fed raised rates for the first time in 7 years

Vehicle Sales Show Continued Strength

Source: Edmunds.com, Automotive News Copyright 2016 CCC Information Services Inc. Confidential & Proprietary All Rights Reserved

36.91 36.92 37.58 35.83 36.24 38.28 40.58

11.58 12.77 14.49 15.60 16.53 17.47 17.6

0

10

20

30

40

50

60

70

CY2010 CY2011 CY2012 CY2013 CY2014 CY2015 CY2016E

In M

illio

ns

U.S. Light Vehicle Sales CY 2010 to CY 2016E Used New

Gasoline Prices, Miles Driven and Claim Frequency

-35

-25

-15

-5

5

15

25

35

'95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 3Qtrs.'15*Gasoline Price Claim Freq. Miles Driven

Low crude oil prices;

oversupply of

gasoline.

Annual Change

Claim frequency fell in 1997-1998, 2001-2002 and 2009 despite lower gasoline prices. * Last data point: Changes in claim frequency and miles driven reflect first 3 qtrs. of 2014 to first 3 qtrs. of 2015. Change in gasoline prices reflects 2014 to 2015 (entire years). Source: FHWA; PCI

Stronger dollar;

oil prices dropped.

More fuel-efficient cars; boom in North

American crude oil.

Falloff in consumer demand after 9/11;

oversupply of gasoline.

35%

25%

15%

5%

-5%

-15%

-25%

-35%

138

140

142

144

146

148

150

152

06:Q

1

06:Q

3

07:Q

1

07:Q

3

08:Q

1

08:Q

3

09:Q

1

09:Q

3

10:Q

1

10:Q

3

11:Q

1

11:Q

3

12:Q

1

12:Q

3

13:Q

1

13:Q

3

14:Q

1

14:Q

3

15:Q

1

15:Q

3

16:Q

1

5.5

5.6

5.7

5.8

5.9

6.0Number Employed (left scale) Collision Claim Frequency (right scale)

More People Working and Driving ‒ More Collisions

Source: Insurance Information Institute Analysis of Seasonally Adjusted Employed from Bureau of Labor Statistics; Rolling Four-Qtr Avg. Frequency from Insurance Services Office.

Number Employed,

Millions

Overall Collision Claims Per 100

Insured Vehicles

States with Highest and Lowest Vehicle Damage Frequency Changes

Highest Frequency Change Lowest Frequency Change

Source: PCI; Society of Actuaries using PPA Fast Track Monitoring System data

7.3% 14.0%, DC

5.9%, MD

-11.3%

-9.7%

-6.5%

-4.7%

-10.7%

-4.2%

-9.3%

9.4% 6.7%

9.7%

7.9%

9.1%

6.2%

6.1%

5.7%

-7.0%, VT -5.4%

-4.8%, NH

More Miles Traveled in States With Higher Claim Frequency Growth

Source: PCI; Federal Highway Association (FHWA)

3.7%

6.8%

2.7%

3.6%

0

1

2

3

4

5

6

7

8

Urban Miles Rural Miles Highest Group Lowest Group

Note: Percent changes represent increases from YE Dec. 2014 to YE Dec. 2015.

16.9% 17.2% 17.7% 17.9%

17.5% 17.4% 17.4% 17.6% 17.8%

18.8%

16.1% 16.1% 16.0% 15.9% 16.8%

17.9%

CY06 CY07 CY08 CY09 CY10 CY11 CY12 CY13 CY14 CY15 MidYr2011

MidYr2012

MidYr2013

MidYr2014

MidYr2015

MidYr2016

Non-Comprehensive Losses Total Loss Share of Claim Count

Total Loss Frequency Rises

Source: CCC Information Services Inc. Copyright 2016 CCC Information Services Inc. Confidential & Proprietary All Rights Reserved

Severity Trends

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

2013 2014 2015(1) 2015(2) 2015(3)

Claim Freq. Claim Severity Loss Cost

7.2% Change

7.0% Change

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

2013 2014 2015(1) 2015(2) 2015(3)

Claim Freq. Claim Severity Loss Cost

8.0% Change

Change since 2013

Highest Freq. Changes Lowest Freq. Changes Change since 2013 14.7%

Change

-1.9% Change

6.0% Change

Data points reflect year-end, rolling 4 quarters, vehicle damage coverages. Source: PCI; PPA Fast Track Monitoring System, ISS, NISS and ISO

Claim Frequency and Severity Affect Loss Cost

0%2%4%6%8%

10%12%14%16%18%

2013 2014 2015 2016YE2Q

Claim Frequency Claim Severity Loss Cost

11.8% increase

Since 2013:

16.8% increase

4.4% increase

Change since 2013

Vehicle Damage = PD Liability + Collision coverages. Data points reflect year-end, and combined rolling four quarters for 2016(2Q). Source: PCI; PPA Fast Track Monitoring System, ISS, NISS and ISO

Auto Medical Increasing + Worse Than Medical CPI

0.0%1.0%2.0%3.0%4.0%5.0%6.0%7.0%8.0%

2013 2014 2015

Auto Injury Severity and Medical Cost CPI Indices

Med CPI BI Sev PIP Sev

7.3%

6.7%

5.1%

Source: PCI using 1. Auto: PPA Fast Track Monitoring System, ISS, NISS and ISO 2. Medical CPI: Bureau of Labor Statistics

Change since 2013

2015 • 8% increased in auto deaths • 4% increased death rate per mile

2016 through June • 10% increased auto deaths • 6% increased death rate per mile

Auto Deaths/Injuries Increasing

-10.0%

-8.0%

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Rise in Auto Deaths Annual Percent Change

Source: PCI; NHTSA

0

5

10

15

20

25

30

2009 2010 2011 2012 2013 2014 2015

Rise in Auto Injuries

Auto injuries up 26% since 2009

Source: PCI; National Safety Council, Medically consulted auto injuries, indexed by PCI

30%

25%

20%

15%

10%

5%

0%

Higher Speed Limits Problematic

8% increase in fatality rates on interstates and freeways for every 5 mph increase in maximum state speed limits

4% increase on other roads

Source: Bergal, Jenni. “Rising Speed Limits Spur Safety Concerns.” April 20, 2015. The Pew Charitable Trusts. Copyright 2016 CCC Information Services Inc. Confidential & Proprietary All Rights Reserved

Speed Limit Impact on Traffic Deaths

20

40

60

80

100

‘12 ‘13 ‘14 ‘10 ‘12 ‘13 ‘14

No. of Speed-Related Deaths

UT changes, eff. 2013 and

2014

WY change, eff. 2014

‘10 ‘11 ‘11

UTAH WYOMING

Speed Limit Impact on Severity

0

2

4

6

8

10

States w/SameLimits

States that RaisedSpeed Limits

Vehicle Damage Claim Severity 2013-2015

Note: States that raised their speed limits since 2013 are AK, GA, ID, IL, KY, ME, NH, NC, OH, PA, SD, UT and WY. Those that changed in 2015 are not included since their new limits have been in effect for only a short time. States with same limits did not make any changes during 2011-2015.

0

2

4

6

8

10

States w/SameLimits

States that RaisedSpeed Limits

Injury Claim Severity 2013-2015

Society

Safety Awareness Poll

70% of Americans think car safety technology has reduced the number of motor vehicle accidents, but in reality auto accidents are increasing.

of Americans think that distracted driving is contributing to more motor vehicle accidents than driving under the influence of alcohol.

85% of Americans agree that distracted walking is a major, emerging problem. 90%

Cellphone Use Declines ‒ Texting and Emailing Grows

Source: U.S. DOT, National Traffic Safety Administration. “Driver Electronic Device Use in 2014.” Traffic Safety Facts Research Note DOT HS 812 197, September 2015. Copyright 2016 CCC Information Services Inc. Confidential & Proprietary All Rights Reserved

0%

1%

2%

3%

4%

5%

6%

7%

Hand-held Cellphone Use Visible Manipulation ofHand-Held Devices - All

Ages

Visible Manipulation ofHand-Held Devices - Ages

16 to 24

Visible Manipulation ofHand-Held Devices - Ages

25 to 69

CY05 CY06 CY07 CY08 CY09 CY10 CY11 CY12 CY13 CY14

What We Say vs. What We Do

AAA True Motion

Text 42% 71%

Phone 66% 92%

Reported Estimated

Crashes 6.3 m 17-29 m

Top 10 Distracted Driving Apps

1. Google Maps

2. Pokemon Go

3. Android Messaging

4. Facebook

5. YouTube Source: True Motion

6. Waze

7. Amazon Music

8. Chrome

9. Pandora

10.Netflix

Distracted Walking – A Rising Risk

Source: Consumer Product Safety Commission/WSJ Research | WSJ.com

0

500

1000

1500

2000

2500

3000

2006 2008 2010 2012 2014

Emergency room visits

Colorado Traffic Deaths Related to Marijuana*

37 39 43 47 49

63

78 71

94

69

0102030405060708090

100

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Num

ber o

f Dea

ths

Legalization

Commercialization

*Number of Fatalities Involving Operators Testing Positive for Marijuana Source: National Highway Traffic Safety Administration, Fatality Analysis Reporting System (FARS), 2006-2013 and CDOT/RMHIDTA 2014, 2015

Marijuana in Colorado

0

200

400

600

800

1,000

1,200

McDonald's Starbucks MarijuanaDispensaries 2015

MarijuanaDispensaries 2016

Source: Colorado State Highway Patrol, March 2015; 2016 marijuana dispensaries: Colorado Dept. of Revenue

Technology

Standard Options on a Base F-150 Pickup, 1985-2015

Source: CCC Information Services Inc. Copyright 2016 CCC Information Services Inc. Confidential & Proprietary All Rights Reserved

• Standard options have changed over 30 years

• Many options now required by NHTSA

Not Your Father’s Oldsmobile

Copyright © 2016 by the Property Casualty Insurers Association of America | www.pciaa.net

Safety Systems

E-Class (213) Control Units Advanced safety systems requiring more cameras and sensors in high-impact areas

Copyright © 2016 by the Property Casualty Insurers Association of America | www.pciaa.net

0%

20%

40%

60%

80%

100%

2000 2010 2020 2030 2040 2050

predictedactual

IIHS/HLDI Registered Vehicles With Front-Crash Prevention

Source: IIHS Copyright 2016 CCC Information Services Inc. Confidential & Proprietary All Rights Reserved

Summary

• Economy and gas price levels will continue to produce heightened miles driven per vehicle

• New vehicle sales placing more costly complex cars in the market

• Technology in vehicles points to longer-term fewer but more expensive repairs

• Medical cost inflation will continue

Policy Recommendations

• Laws/enforcement against distracted driving

• Robust drunk/drugged driving limits

• Responsible speed limits

• Education and awareness

• help the policymakers understand trends

• help the public receive timely and useful information

© 2016 Amica Mutual Company, Lincoln, Rhode Island. All Rights Reserved. The Amica name, logo and all related names, logos, product and service names, designs and slogans are trademarks of the Company or its affiliates or licensors. You must not use such marks without prior written permission from Amica.