What is a significant issue generated by the high claims frequency in auto insurance?

High claims frequency in auto insurance leads to increased premiums because insurance companies must account for the higher costs associated with paying out more claims. When insurers experience a higher volume of claims, they assess the financial impact on their overall profitability. Consequently, to maintain their financial stability and cover these costs, they raise premiums for policyholders. This adjustment reflects the changing risk landscape where the frequency of claims signifies a greater likelihood of costs incurred.

In contrast, while lower insurance coverage options and a high risk of fraud can be related to the claims process, they are not direct consequences of claims frequency. Difficulty in processing claims may arise from many factors but is often a separate operational issue rather than a direct result of high claims frequency. Therefore, the correct understanding focuses on how increased claims directly influence the cost structure of insurance premiums.