SOURCE: Quality Planning

August 07, 2008 06:00 ET

Americans to Drive 125 Billion Fewer Miles, According to Analytics Firm Quality Planning

A Survey of Driving Habits Shows That Annual Mileage Driven on American Roads Is Declining, Mainly Because of a Reduction in Discretionary Use of Vehicles

SAN FRANCISCO, CA--(Marketwire - August 7, 2008) - Quality Planning, the company that validates policyholder information for auto insurers, has released proprietary findings that show Americans are changing their driving habits as gas prices hit record levels this year. Based on telephone conversations with drivers around the country, the firm concludes that a majority will drive less in the coming year, with the biggest planned cutback occurring in "pleasure use" (when a vehicle is not being used for commuting or work-related purposes).

Based on this predicted reduction in discretionary use of vehicles, and assuming gas prices remain at current levels, QPC projects a mileage decrease of 4 to 5 percent over the next 12 months, or 500 miles per year per vehicle. "With 250 million passenger cars on the road, this equates to 125 billion fewer miles driven. At an average 20 miles per gallon, this will result in a reduction in gasoline consumption of 6 billion gallons, equivalent to 307 million barrels of crude oil," said Dr. Raj Bhat, president of Quality Planning. A barrel of crude oil yields approximately 19.5 gallons of gasoline.

While the report notes that Americans have been slow to respond to fast-rising gas prices, it also reveals that behavioral changes are accelerating as old habits are displaced by more fuel-conscious actions. And automobile buying decisions are beginning to reflect the pain consumers are feeling at the pump. Although some commuters are reporting a shift to public transportation in areas that have well-developed public transit systems, this shift has so far been insignificant and has not yet affected total commute miles driven.

"Our conclusion is that, as for the first time in more than 20 years, annual mileage driven on American roads is declining, and the rate of that decline is accelerating. The many factors causing this decline make for a very complex pattern," said Robert U'Ren, senior vice president at Quality Planning. "As individuals and families adjust their lifestyles to the impact of higher oil prices, fundamental change will occur. In no sector is this truer than for auto insurance companies, which must focus their pricing and products to address consumers' emerging switch to new vehicle designs, shifts in household vehicle mix, driver usage patterns, and also changes to underlying cost structures. The latter due to the fact that the increased price of oil and other goods also affects the cost of goods and services for which auto insurance pays."

Summary findings (complete report with accompanying charts can be downloaded here)

1.  Americans have responded slowly to rising gas prices

    Despite gas price hikes of 35 to 50 percent, only one percent fewer
    miles were driven in the past year. The rapid rise in prices at the
    pump took many consumers by surprise. Initially, consumers reacted with
    'quick fixes' that could be implemented without reducing mileage
    driven. For example, despite recommendations of car manufacturers, some
    owners of high-end cars switched from premium to regular gasoline.
    Others tried to reduce average speed or inflate their tires to help
    improve miles per gallon. Still others investigated public transit but
    may have found that those fares had also recently increased.

2.  Discretionary miles are going down, more so for rural drivers

    By the end of the second quarter of 2008, 60 percent of drivers
    reported driving fewer miles than a year earlier. A comparison of
    projected mileage estimates obtained in the first and second quarters
    of 2008 highlights a disparity in the mileage reduction between areas
    that have well-developed transit systems and those areas with poor
    public transit; people living in areas with fewer transit options are
    cutting back more on their discretionary outings.

3.  People with large SUVs are economizing the most

    Drivers of large SUVs (e.g., GMC Yukon, Lincoln Navigator, Toyota Land
    Cruiser) are more likely to be changing their driving habits. Quality
    Planning found that in multi-vehicle households with a mix of vehicles,
    owners of vehicles with larger engine sizes (SUVs, larger vans) plan to
    reduce miles driven by 5.5 percent and shift some of the miles to more
    fuel-efficient smaller cars, resulting in an expected increase in miles
    driven on the smaller cars by about 2.8 percent.

4.  Station wagons are emerging as a popular solution for hauling loads

    The composition of insured vehicles during the first half of 2008 has
    changed from a year earlier. But contrary to expectations, there was
    virtually no reduction in the proportion of SUVs/minivans/vans/pickups,
    which remained at 52.5 percent. The proportion of sedan/coupe category
    dropped from 46.6 percent to 45.4 percent. The big change was in the
    station wagon category, which increased from 0.9 to 2.1 percent.

5.  Driving less will likely not lower insurance premiums

    Drivers expecting to see lower insurance premiums because they are
    driving less may be in for a surprise. The rapidly rising price of oil
    has increased the cost of vehicle parts. Those higher costs will be
    reflected in higher loss severity and, as a result, will act as a
    counterforce to the reduction in annual mileage.

About Quality Planning

An ISO business, Quality Planning is focused exclusively on providing rating integrity solutions to auto insurers. Quality Planning works with insurance companies to identify areas of significant rating errors using sophisticated database management, statistical analysis and modeling, customized survey design, and highly targeted customer interaction. Quality Planning helps clients work within their existing rating plans and charge fair prices to policyholders based on a true representation of risk. The company was founded in 1985 and is headquartered in San Francisco. For more information, visit www.qualityplanning.com.

About ISO

A leading source of information about risk, ISO provides data, analytics, and decision-support services to professionals in many fields, including insurance, finance, real estate, health services, government, human resources, and risk management. Using advanced technologies to collect, analyze, develop, and deliver information, ISO helps customers evaluate and manage risk. The company draws on vast expertise in actuarial science, insurance coverages, fire protection, fraud prevention, catastrophe and weather risk, predictive modeling, data management, economic forecasting, social and technological trends, and many other fields. To meet the needs of diverse clients, ISO employs an experienced staff of business and technical specialists, analysts, and certified professionals. In the United States and around the world, ISO helps customers protect people, property, and financial assets. For more information, visit www.iso.com.

Contact Information