Commentary/Opinion
Car insurance costs are rising faster than overall inflation—here's a closer look
Car insurance costs are rising faster than overall inflation—here's a closer look
The cost of car insurance shot up 19% in just one year, the latest Bureau of Labor Statistics data shows, significantly more than the overall inflation rate of 3%.
The vast increase outpaced every other spending category tracked by the BLS in November. It is strikingly out of place alongside otherwise cooling inflation. What's more, the cost of new cars grew just 1.3% since last year after a period of record highs, and the cost of used cars and trucks actually fell.
So why the increase in car insurance costs? CheapInsurance.com identified reasons insurance costs are spiking, and compared historical inflation to the rising cost of car insurance using BLS data.
While the past year's insurance premium spikes have been particularly jarring, car insurance costs have increased faster than overall inflation for most of the past decade. That's largely due to faster cost increases in vehicle repairs, medical care, and (to some extent) legal costs, which all directly affect insurance agencies' expenses.
Ownership and use of cars are also on the rise, meaning more congested roads and, in turn, more accidents. To top it off, distractions while driving have surged in the age of technology, again causing costly crashes that insurance providers must cover.
How Much Car Insurance Prices Will Rise in 2024: Experts
Auto insurance premiums have risen faster than nearly every other common consumer cost, and painful price hikes are likely to continue in 2024.
The consumer price index (CPI) shows that auto insurance prices are up 19.2% in the past year, far outpacing the overall inflation rate and exceeding the inflation rate for pretty much any other significant spending category.
Auto insurance costs have climbed because car prices shot up during the pandemic, and dangerous driving behavior increased as well, leading to more claims and more severe claims. Insurance companies need to pass these costs along to their customers, but it often takes a long time to get rate increases approved by state regulators.
This lag is one of the reasons auto insurance prices are still soaring even though inflation is easing in general.
“A lot of the big rate increases were kind of delayed from 2020 on to 2024, and then ultimately we're seeing those now,” says Sean Scaturro, advice director at USAA.
Allstate, for example, secured auto insurance rate hikes in New York (14.6%), California (30%) and New Jersey (20%) that went into effect last month.
According to a December report from AM Best, personal auto insurance companies had underwriting losses of $33.1 billion in 2022 and “results continued to slide in the first half of 2023.” A major part of the problem is that the average cost per claim has risen to $11,102 after jumping 11% in a year.
The road to digitization – what's holding back commercial lines insurance?
As the driving force behind Risk Placement Services (RPS) becoming a fully digital operation by 2025, chief digital officer Ryan Collier (pictured) is no stranger to the new technologies touted as the route to accelerated digitization.
In conversation with Insurance Business America, he highlighted that one of the biggest disappointments he has seen is the propagation of APIs, which he believes do not serve the customer, the broker or the carrier across a full policy lifecycle.
The opportunities presented by generative AI
On the other hand, he pinpointed generative AI as the technology that has the potential to be truly disruptive for the industry. Collier noted that he – and the wider team at RPS – are spending a lot of time exploring the opportunities presented for generative AI to redefine the business. That’s not to say there aren’t challenges and areas of concern around generative AI, he said, particularly around the question of how to programme out inherent biases.
“But overall, I’m very bullish on generative AI over the next 18 to 24 months,” he said. “For those who have the capability and aptitude to harness it, generative AI will be a game changer for their businesses. So that’s probably the one overarching technology that I think will have the most impact, much more so than the API preponderance that we see nowadays.”
Research
Carriers are using digital to offset rising premiums: J.D. Power
According J.D. Power's Insurance Intelligence Report, the insurance industry will see a surge in digital adoption in 2024. The report, based on responses from multiple J.D. Power studies published within the past year, marked 2023 as a year of major disruption – rising premiums led to a shift in consumer shopping behavior, marketing trends and tech innovations. J.D. Power researchers indicate that, moving forward, carriers will concentrate on new technologies and digital efficiencies to combat the premium surges seen in 2023.
Inflation and loss ratios have continued to rise, resulting in lengthy claims times and increasing claims costs. This is prompting carriers to work towards more digital efficiencies in their claims operations with the goal to emphasize speed and accuracy. The report includes an example of how carriers are using tech to determine totals faster and improve customer experiences in a situation of total loss.
The industry is also employing more means for digital communications. Online channels such as using a mobile app or texting your carrier are gaining traction with insurers. Email is the most popular form of digital communication between customers and carriers, with 50% of respondents saying that they have previously used email, followed by 36% of respondents who have texted an insurer and 30% who have used an online portal via website or mobile app.
Carriers are also challenged with engaging customers through their preferred interaction channels to enhance overall satisfaction. Digital adoption presents more opportunities for efficiency, but carriers must balance it with the need to maintain a positive customer experience – especially with the state of high loss ratios and lengthy claims processes.
InsurTech/M&A/Finance/Collaboration
Riskonnect buys Ventiv
Riskonnect Inc., which is backed by private-equity firm TA Associates LP, said Thursday it has acquired rival Atlanta-based risk management information services provider Ventiv Technology Inc.
TA Associates provided additional capital for the acquisition and will continue as Riskonnect’s majority owner, the Atlanta-based risk management information systems provider said in a statement.
Riskonnect is an integrated risk management services provider. Ventiv’s services include claims administration and billing and policy solutions.
The entire Ventiv team will join Riskonnect, which has more than 1,200 employees in the Americas, Europe and Asia, according to the statement. Ventiv, which is backed by private-equity firm Tailwind Capital Group LLC, has 400 global employees. Salil Donde, former CEO of Ventiv, has left the company.
The combined company will have more than 2,500 customers globally.
Riskonnect has made a series of acquisitions in recent years. In 2022, it bought Castellan, a global provider of enterprise resilience management solutions, and Sword GRC, a governance, risk and compliance company based in the United Kingdom.
It acquired rival RMIS provider Marsh ClearSight, formerly a unit of Marsh LLC, in 2018.
hyperexponential raises $73M in Series B Round Led by Battery Ventures
The latest round of financing will support its expansion into the United States, as it targets opening its New York office this year.
hyperexponential (London), a global provider of pricing decision intelligence (PDI) software, has announced the completion of its $73m Series B funding round led by global technology-focused investment firm Battery Ventures (Boston), with participation from leading Silicon Valley investor a16z, and existing Series A investor Highland Europe, which increased its holding.
hyperexponential’s PDI platform, hx Renew, enables insurers to leverage large and alternative datasets, develop and refine rating tools rapidly, and employ sophisticated machine learning approaches to price risk and make data-driven pricing decisions at the portfolio and individual level, according to a company statement. hyperexponential reports that, since its Series A round in 2021, it has grown sales tenfold while staying profitable, serving some of the world’s largest insurers, including **Aviva, HDI, and Conduit Re.II
The company says the latest round of financing will support its expansion into the United States, as it targets opening its New York office this year. The firm says the new financing will also enable increased investment in new product capabilities to serve growing client demand in adjacent insurance markets, including the SME insurance sector. The company plans to double its global team to over 200 in the next year.
Sponsoring its Series B investment and joining hyperexponential’s board as a director is Battery Ventures Partner Marcus Ryu, Co-founder, Chairman, and former CEO of Guidewire Software (San Mateo, Calif.), wits 2001. Also joining the company’s board is experienced a16z General Partner Angela Strange.
AI in Insurance
How generative AI is providing an edge in the insurance industry
Insurers can enhance customer experience and competitive edge with generative AI
AI is no longer a technology of the future, but an established tool assisting workflows across multiple industries including insurance.
The insurance industry is already harnessing the possibilities of AI, ML and LLMs (large language models) to disrupt traditional operations. Accenture suggests that there is $170bn in premium at risk over the next five years as customers switch insurance carriers due to not being fully satisfied by the claims process, making the competitive edge more critical than ever.
Beware of the risks surrounding AI training
Making AI usable for businesses requires a critical activity known as annotation — the process of labelling data to train AI models. Open-source Generative AI solutions and foundation models which have been pre-trained on labelled general data sets such as the internet provide a good head start, but these general AI models must be tuned for industry-specific applications. This is where industry expert annotation becomes vital to ensuring that AI models are reliable and consistent and achieve a high level of accuracy. Generative AI solutions also require upfront effort in prompt engineering to enable the correct data to be pulled from the models.
In 1848, during the California gold rush, while many people focused on mining for gold, others recognized that providing crucial tools and equipment for prospectors was equally important. These enterprising individuals became known as "picks and shovels" providers and were vital for prospectors in their search for gold.
Digitizing the insurance experience Fast forward to 2023 and as artificial intelligence (AI) captures the public attention, executives and boards across all industries are prioritizing AI investments and driving a 'gold rush' in the AI space. In fact, according to recent research by Accenture, 40% of all working hours could be impacted by AI and be transformed into more productive activity through augmentation and automation.
Due to how important data annotation and model training are to realizing the promise of AI, they have themselves become big business. Just as the picks and shovels providers supported the search for gold in 1848, companies such as Scale AI have become the backbone of AI development by offering essential annotation services used for training the AI models of Open AI, Microsoft and others.
Martin P.D. Henley Chief Executive Officer , Mea
People
Allstate hires new chief claims officer
Mike Fiato will join Allstate as executive vice president and chief claims officer.
Allstate announced that Mike Fiato will join the company as executive vice president and chief claims officer later this month.
Fiato will lead strategy and operations for the claims organization, which includes 16,000 employees and over 6.5 million claims annually.
He joins the company from Liberty Mutual where he was executive vice president and chief claims and service officer. Prior to joining Liberty Mutual in 2017, Fiato worked at Progressive.
As previously reported by Digital Insurance, Allstate recently relaunched its app with new third-party features, including self-service. The insurer added a gas finder from GasBuddy, a parking reservation platform using SpotHero, weather risk information from Risk Factor and a repair shop finder with Good Hands Repair Network. The app also includes the insurers' Drivewise telematics program.
TNEDICCA Welcomes 30-Year Progressive Insurance Veteran Dave Pratt to its Board
TNEDICCA, a leader in traffic crash data and location risk analytics, welcomes Dave Pratt, a 30+ year veteran of Progressive Insurance, to its board.
Dave served in many roles at the insurance trailblazer, including General Manager of Snapshot, Progressive’s usage-based insurance telematics business, and President and CEO of ARX Holding Co., Progressive’s homeowners insurance subsidiary, where he built a direct-to-consumer distribution channel, growing revenue from $1 billion to $2.8 billion.
"TNEDICCA’s unique data assets offer auto insurers first-of-its-kind location risk solutions to the industry that is near and dear to my heart," said Dave Pratt. "TNEDICCA’s data and insights allow insurers to offer more competitive prices to drivers who avoid dangerous areas, resulting in savings for the customer and profitable growth for the insurance company. I am excited to join TNEDICCA’s board, guiding TNEDICCA on its entrepreneurial journey."
"Dave is a proven leader with an established track record and outstanding reputation in the insurance industry," said Yiem Sunbhanich, co-founder and CEO of TNEDICCA. "We are honored to welcome Dave to the board where he will serve as a key advisor as we accelerate innovation at TNEDICCA. His extensive operating experience in market segmentation, new product development and strategy, gained from decades at Progressive, will be a tremendous benefit to advancing the TNEDICCA mission of reducing traffic accidents through the better use of data and analytics."
Webinars/Podcasts/Interviews
[Ed. Note: Recommended] How to Resolve the Auto Insurance Crisis: Register Now for this Upcoming Webinar!
How to Resolve the Auto Insurance Crisis
A Smarter Approach to Claims Can Cut Costs and Take the Pressure Off Premiums
Even though the average auto premium increased more than 17% in 2023, carriers are expected to face profitability challenges until at least 2025. Insurers need new strategies.
Join industry experts Kevin Moynihan and Erik Bahnsen of CCC Intelligent Solutions, and special guest speaker Ellen Carney of Forrester, as they examine the impact of escalating medical costs, litigation, social inflation, and accident severity and frequency. The discussion will include how innovative AI technology can help maintain profitability amid growing claims costs.
Key Takeaways:
- Analyst projections into the many factors contributing to rising premiums.
- Actionable strategies for claims organizations to mitigate costs.
- Expert insights on what may lie ahead to help you stay informed and prepared.