4 ways auto insurers can get ahead of today's big challenges

4 ways auto insurers can get ahead of today's big challenges
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Key Takeaways
  • Auto insurers are facing industry challenges that are leading to higher loss frequency and severity.
  • Critical challenges include the rising cost of claims, changing consumer preferences, worsening driver behaviors, and a changing regulatory environment.
  • By leveraging the right Mobility Risk Intelligence (MRI) provider to implement solutions like Insurance Qualification Lens (IQL), insurers can tackle these challenges head-on.

With most of 2022 already behind us, we’ve witnessed several new trends and challenges emerge across the auto insurance industry. In addition to economic uncertainty and inflationary pressures, driving levels in the US have crept up to pre-pandemic highs, with driving behaviors having worsened. Supply chain issues following the pandemic have also made it more difficult for car manufacturers and repair shops to get parts. 

With these challenges come higher loss frequency and severity for insurers. Meanwhile, consumers who are unhappy with the consequential rising policy prices continue to shop around, and regulatory bans in more US states urge insurers to shift from relying solely on traditional risk factors like credit score and location. 

So how should auto insurers think about getting ahead as they look to dodge further threats to profitability? Let’s dive into 4 of the major industry challenges today and explore ways in which insurers can overcome them.

Challenge #1: Rising cost of claims

Across the auto insurance industry, claims costs are rising because of high labor and repair costs, supply chain issues, inflation, higher collision frequency, and labor shortages, leading to a lack of experienced claims adjusters that take more time to process claims. A stronger case can therefore be made for more quickly and efficiently digitizing claims (claims digitization is happening across the industry, according to McKinsey, but at a slow rate). 

Using data to get ahead

Insurers can use data to help them mitigate and manage rising claims costs. For example, implementing a digital FNOL process allows claims data to get to insurers immediately in the moment of truth, saving resources and time through automation. Digitizing this crucial first step also lets claims adjusters focus on more complex claims and make smarter decisions.

Additional benefits from leveraging AI & automation in claims include: 

  • Boosting customer satisfaction, loyalty, and retention: Transforming a claim’s turnaround time from weeks to minutes - and reducing the number of touch points in the process - is one important way claims automation can improve customer experience and satisfaction.
  • Lowering costs, increasing scalability: By leveraging hardware that already exists in the hands of policyholders, insurers save on any additional hardware costs, all while – when partnered with the right Mobility Risk Intelligence (MRI) provider – providing personalized experiences with customers straight from their preferred channels: their smartphones.
  • Raising LTV through trust and credibility: Being able to send automatic collision notifications, instant assistance, and automated claims right from the “moments of truth” strengthens the relationship between customer and carrier, and that ultimately leads to higher loan-to-value ratios (LTV).
  • Decreasing fraud: Getting access to specific information, such as whether the car was being driven at the time of the reported collision, allows insurers to better understand a given accident and thus reduces the likelihood of insurance fraud.
  • Lowering loss adjustment expenses: Opting for solutions with smartphone-based automatic collision detection helps insurers lower their loss adjustment expenses (LAE). Insurers can analyze claims faster, straight from that moment of truth, reducing claims cycle time and boosting overall adjuster efficiency.

Challenge #2: Changing consumer preferences

For consumers, higher claims costs are reflected through rising policy prices. This causes consumers, more conscious than ever about the process of buying auto insurance, to shop around for other better-priced policies. Insurers are therefore fighting to compete. 

According to data from the Bureau of Labor Statistics via Jerry, “Insurance was the fastest-climbing vehicle expense from 2012 through July 2022, increasing 52% despite insurers offering discounts during the COVID-19 shutdowns in 2020.” 

In addition, consumers are increasingly interested in usage-based or behavior-based policies. We saw this interest first spike back in the early days of the pandemic – a 2020 Bain report found that 21% of consumers surveyed had already purchased usage-based auto insurance, and 56% said they would likely purchase it in the future. 

More recently, a survey conducted by Duck Creek Technologies found that “nearly 60% of respondents have a strong interest in usage-based insurance policies. 

It’s also important to keep in mind that, according to a recent Car Insurance Shopping Behavior Survey via, “The two primary motivators for shopping around for a new insurer are 1) receiving a discount offer and 2) purchasing a new vehicle.” 

Using data to get ahead

Auto insurers can get ahead by investing proactively in areas that will help them build a competitive advantage in times of shifting consumer preferences. For example, by leveraging the right mobility risk intelligence platform backed by massive amounts of driver data, insurers can provide timely risk insights to drivers in real time. This helps insurers both acquire preferred risk and provide better pricing and experiences for policyholders. 

First, insurers can get access to more diversified consumer bases through partnerships with major consumer apps (for example, via Zendrive’s IQL network). They can then meet these consumers where they are, within the apps they use the most, to offer them a chance to opt-in to a test drive experience to earn discounted insurance rates based on how they drive. 

That incentive is more appealing than ever to consumers who are increasingly shopping around for better prices – and to those who have an increased interest in behavior-based policies. Plus: providing timely risk insights to drivers can help boost road safety and decrease overall traffic fatalities (which are on the rise). 

Challenge #3: Worsening driver behaviors

The August 2022 Auto Insurance Report indicated that traffic fatalities in the first quarter of this year rose by 7%. A total of 9,560 people died on US highways, the highest number of first quarter fatalities in 20 years. 

What have insurers already done to lower fatalities? Many top-tier carriers already have driver coaching programs in place, leveraging traditional telematics programs to offer behavior-based policies for their customers.

These telematics programs of today certainly aren’t to blame for rising traffic fatalities. But while telematics adoption rates have doubled for a few programs, the total adoption rate is still underwhelming, especially as telematics programs have been around for over a decade. Insurers could leverage better solutions in order to bring the adoption rate to where it should be, alongside rising consumer interest in UBI and BBI. That would ultimately lead to slashed claims costs, safer roads, and saved lives.

Using data to get ahead

Today, insurers’ mobile apps aren’t seeing the right engagement metrics. Few consumers are actually regularly engaging with these apps, even if they are providing critical risk insights and data. Insurers have struggled to build a sustainable engagement channel tool to help drivers actually improve their behavior. Meanwhile, driving behavior is deteriorating, and the industry is in need of an immediate solution. 

Insurers should work with the right mobility risk intelligence provider that helps them perfect the customer experience, end-to-end. When insurers find customers on the apps they’re already using – meeting them where they already are – and subsequently build usage- and behavior-based driving experiences are actually fun and engaging, adoption will rise. Insurers also need to pay close attention to specific engagement metrics following the launch of a UBI or BBI program in order to set them up for success.

Zendrive personalized driving feedback

One way to incentivize drivers to make improvements to their driving behavior is by offering an auto insurance discount at the end of a test drive experience, as Zendrive does through its Insurance Qualification Lens (IQL) solution. This unique experience bridges the gap between improving road risks and providing a rewarding, fun experience for drivers. 

Challenge #4: Changing regulatory environment

More and more, US state regulators are issuing bans on “using credit-based insurance scores as the sole basis for increasing rates or denying, canceling, or not renewing policies.” Currently, California, Hawaii, Maryland, Michigan, and Massachusetts ban or limit insurers’ use of credit scores to determine policy rates, and Oregon and Utah have established prohibitions on the use of credit history information in certain circumstances, according to the National Association of Insurance Commissioners (NAIC).

Using data to get ahead

As bans on credit scores and other traditional risk factors slowly increase across the nation, they put pressure on auto insurers to actively find other ways of scoring risk – namely, through using driving behavior data. Insurers can get ahead by leaning more on real-time data vs. proxy risk factors. 

A solution like Insurance Qualification Lens (IQL), for one, allows insurers to use telematics data without experiencing the inherent friction and costs of building, launching, and scaling a UBI program.

Moving forward: Future-proofing your business with Mobility Risk Intelligence (MRI) 

Auto insurers continue to face challenges that pose real threats to their business. But effectively combatting these challenges face-on – especially in this time of economic downturn and urgency to remain profitable – means partnering with the right MRI partner to seamlessly offer critical timely risk insights to policyholders, right now.

To learn more about Zendrive’s MRI platform and IQL solution, contact us below.

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4 ways auto insurers can get ahead of today's big challenges
Syed Ali Haris
VP of Enterprise Product Marketing
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