The auto insurance industry is entering 2022 and facing a combination of factors ranging from supply chain driven cost increases to technological revolutions. But at least for now, auto insurance rates appear to be only modestly affected.
Supply chain woes
The most significant factor currently affecting the auto industry also has the potential to drive up auto insurance rates: supply chain disruptions.
Much ink has been spilled over the critical shortage of semiconductors. Without these high-tech chips, assembly lines have stalled. And with limited stock rolling off the assembly line, prices for the few new vehicles available have risen.
But semiconductors aren’t the only missing piece to the self-assembly puzzle. Almost every component, from filters to seat leather, has faced supply issues or pricing pressures, largely as factories struggle to return to full capacity after COVID shutdowns. .
And the blockade of tractor-trailers on parts from Canada has not helped matters.
From an insurance perspective, the problem is that if an insured vehicle is destroyed in an accident, the insurer now has to pay more to replace it (not to mention just repair it.) And with potentially more money paid out in claims, premiums will eventually follow.
Pay while you drive
A distorted supply chain isn’t the only narrative in the auto insurance industry this year, however.
Another determining factor is the so-called usage-based insurance. These policies represented $19.6 billion in premiums in 2021 in the United States and are expected to grow at an annual rate of 25% for a few years.
These policies use some sort of tracking technology to match insurance premiums to driving habits. People who accelerate more pay more. People who drive safely pay less.
To collect these data points, insurers rely either on devices that plug into the vehicle’s diagnostic port or on mobile apps installed on the driver’s phone, and increasingly, on data collected directly from the vehicle’s on-board telematics package integrated into the on-board computer.
Usage-based policies are always voluntary and not available in all states.
According to a study published by Nationwide, 62% of drivers said they were concerned about the information picked up by telematics devices. But this concern has not stifled demand. That same survey showed that 65% of drivers said they would allow telematics to monitor their driving if it meant a discount.
Right now, the biggest factor holding back usage-based insurance appears to be a lack of knowledge, with only 27% of consumers telling Nationwide they even know what these policies are, and 40% of agents saying they don’t feel informed enough to advise clients on them.
But as more and more drivers discover that they could potentially save money with these devices, this knowledge gap is certain to close.
As more and more people turn to carpooling and other gig work to earn a living or supplement their salaries, many are surprised to learn that their personal auto insurance doesn’t cover them when they’re away. time, because almost all proprietary fonts specifically exclude commercial use.
Many on-demand employers offer some coverage while workers are on the job – actively picking up passengers or en route for a delivery, for example. But if they’re online when they’re not actively charging for work, they may face a coverage gap.
Fortunately, private insurers offer endorsements to extend personal coverage to certain business activities, but construction workers should ensure they discuss their business use of their vehicles with their agent to ensure they get the proper coverage.
Autonomous car technology is advancing at a breakneck pace, but not all state insurance regulators are moving that fast.
Some states have written laws allowing driverless vehicles, but they require the owner to carry extremely large insurance policies – in some cases, more than double the liability limits required for human drivers. Others set minimum liability coverages in the millions.
The biggest insurance question regarding autonomous technology is: in the event of a wreck, who is liable? Since the driver was not in control, could he reach the legal “fault” threshold? Could the builder be at fault? The programmer?
There is still some time to develop the legal framework.
The hope is that since the vast majority of accidents are attributed to human error, the machines wouldn’t have as many wrecks, but in the meantime, every major accident or fatality involving a self-driving vehicle makes headlines.
From supply chain issues to larger roles played by technology, 2022 promises to be an eventful year for auto insurers. But at least in the first quarter, rates have been quiet.
Most of the rate increases filed with state regulators so far this year have been in the single digits, but industry watchers are holding their breath to see how all of these changes will impact longer-term rates. . At least one state, Texas, has already announced its intention to raise short-term rates.
Michael Giusti (photo, top left) is a Senior Writer and Analyst for InsuranceQuotes.com (https://www.insurancequotes.com/).