Change has been a key theme for auto insurance in 2021. After auto use and road volume dropped to unprecedented levels in 2020 due to the pandemic, motorists dramatically increased their driving frequency and even changed their driving behavior as public health measures eased. These changes have had a major effect on car insurance companies and, unfortunately, after two extremely volatile years, there is no indication that 2022 will bring much stability.
If you drive a lot, you probably thought other drivers weren’t as careful as they were before the pandemic. The data supports this impression. According to a large distracted driving survey, 4 in 10 motorists said they used their iPhone while driving, an increase of 13.7% from 2020, and more than half (55%) of Android users says the same, an increase of 2.7%.
And traffic volume has increased significantly from 2020. According to the US Federal Highway Commission, traffic was down 11.3% in January 2021 from pre-pandemic levels in January 2020. But by November 2021, traffic was up 11.2% year-over-year.
The supply chain disruption combined with an increase in demand for cars, both used and new, has made it difficult to buy a car. North American light vehicle production fell 63% during the early days of the pandemic from the first quarter of 2020 to the second quarter of 2020, according to a KPMG report. Then, just as demand for new cars rose again, the shortage of semiconductors prompted production cuts, which were compounded by a severe labor shortage – manufacturers had 584,000 supply offers. job they were unable to fill in October 2021.
As a result, many consumers opted to buy used cars, and the prices of these vehicles increased by 42% from December 2019 to October 2021. Thus, people being unable to find new and used cars within their budget, people also keep their vehicles much longer. . The average age of a light-duty vehicle on U.S. roads has risen to 12.1 years in the summer of 2021.
A final factor is new technology. Cars are much more advanced than they were five years ago, which has made vehicles much safer and more efficient. But if they are in an accident and these technologies suffer damage, the total cost of repair will be much higher than before.
Outlook for auto insurance in 2022
Increased damage severity: Insurers should expect higher claims, on average. In modern cars, sensitive technologies such as cameras and radars are mounted on the outside, such as in the bumper. An accident that might have caused minor cosmetic damage to an older car can render a modern car undriveable, due to damage to these sensors. So not only will the size of claims increase, motorists will need roadside assistance more often to tow their car.
Also, since people on average own older cars, it is more likely that there will be a breakdown that will trigger a claim.
Roadside assistance: Although not the largest claim type by amount, roadside assistance is by far the most common claim by volume, meaning it has an outsized effect on relationships with customers and the NPS of an automobile insurer. The past two years of extremely volatile traffic volume have had a huge impact on the towing industry. After traffic volumes plummeted at the start of the pandemic, towing providers had to cut staff and sell off assets like trucks and towing rigs to survive. So now, with the rapid increase in volume, towing providers are struggling to keep up with demand. A HONK survey of more than 580 towing suppliers showed that more than 20% of suppliers have to refuse work.
Granted, towing companies are scrambling to hire new tow operators and purchase equipment, but right now their #1 priority is to operate as efficiently as possible, which means first perform the jobs closest to the available trucks so that each operator can do as many jobs each day as possible. Towing and roadside program providers with location-based dispatch systems that match motorists in need with the nearest service provider can help, but until the situation stabilizes for the towing industry, motorists will likely wait longer than normal for help to arrive.
From the good side: While there isn’t much upside to the increased size of claims and delays for roadside assistance, all of these new technologies that are now being incorporated into new vehicles will pay off for auto insurers. Telematics, for example, will allow carriers to create highly accurate risk assessments of individual motorists that will change over time as driver behavior changes. Carriers will no longer have to rely solely on demographic information, such as age, financial background and education, but will instead be able to analyze actual driving behavior in real time. Additionally, new AI-powered mobile technologies are now allowing select towing and roadside assistance program providers to capture accurate accident details right at the scene to expedite claims. Adjusters are able to make more informed and instant claims decisions that reduce cycle times and costs.
Some telematics capabilities won’t become a reality for some time, as there are many regulatory issues to resolve. But it is clear that insurance is moving in this direction. This means that insurers who have embraced digital technologies will be better able than laggards to take advantage of this wealth of data.
In conclusion, 2022 will look a lot like 2021, at least at first. But the situation will eventually return to equilibrium, and with new telematics and AI-based technologies beginning to impact individualized risk assessment, the long-term future looks bright.
Rochelle Thielen is Chief Revenue Officer at HONK Technologies.
The opinions expressed here are those of the author.