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Trends reports say UBI, AI & telematics here to stay, industries still learning pros & cons

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An insurance intelligence trends report from J.D. Power, released in mid-December, called 2023 “the year of disruption” for the insurance industry from surging rates to underwriting automation, carrier selection, and the channels through which customers access policies.

“According to data collected by J.D. Power, 2024 will present plenty of new challenges and shifting trends in the insurance industry — from an evolution in the way customers shop for their policies to the way insurers service those policies,” the report said.

One such trend is customers are increasingly interested in usage-based insurance (UBI), which is disrupting decisions to bundle auto and homeowners insurance.

“[M]any customers [are] finding their best deal is to have a UBI-based auto policy and a homeowners policy with a different, lower-priced carrier,” J.D. Power wrote. “In 2023, 66% of customers with less than one year with their home insurers bundled their home and auto insurance. That’s down from 76% a year ago. Customers with more than a year with their home insurer showed more willingness to bundle, with 77% bundling home and auto, up slightly from 76%.”

However, J.D. Power predicts premiums won’t be slowing down, creating an even larger role for UBI in 2024 insurance shopping.

“If the carrier hasn’t already conducted proactive outreach offering a policy review, customers will be reaching out to their agents or insurers seeking ways to mitigate their higher premiums,” the report states. “This presents an opportunity for carriers to highlight the existing and potential value of the policy and the advantages of being their customer.

“Strategic partnerships between insurers and other companies are one way we have seen carriers bring additional value to their offerings and we expect to see more of this moving forward.”

In addition, insurers are more often looking to AI and machine learning “hoping that can alter the cost-benefit equation for customers.”

As loss ratios remain high, insurers must focus on speed, efficiency, and accuracy in claims handling — “buzzwords we are hearing in conversations with claims teams,” J.D. Power wrote.

“For example, in total losses, industry leaders are using tech to determine totals notably quicker and seeing positive results in both cycle time reductions and improved customer experiences,” the report states. “We’ve also seen increased usage of digital channels for claim reporting and communication and expect growth to continue.”

J.D. Power’s “Five Factors Influencing P&C Insurance Shopping” report, released during Q2 2o23, detailed how inflation and long wait times caused customer satisfaction with auto claims to steadily drop since 2021. The report looked at trends from 2018-2023.

Despite insurers offering larger payouts, policyholders remained irked by other components.

The five forces and trends J.D. Power found were:

    1. “Inflation is driving rates and rates are driving shopping;
    2. “UBI is taking a larger role in shopping and may break the ‘bundling mold;’
    3. “Insurers are increasingly targeting the most profitable consumers (‘Robinsons’);
    4. “Insurers are pulling back as more consumers are shopping; and
    5. “Less satisfying claims experiences are beginning to influence more consumers to shop.”

In total loss claims, customers said they struggled to find replacement vehicles, according to the report. When vehicles were repairable, customers were waiting longer for repairs to be completed with repair times growing from 12 days in 2020 to 17 days in 2022. By October 2023, the average repair cycle time had reached 23.1 days.

Last week, Cambridge Mobile Telematics (CMT) Strategy and Corporate Development Senior Vice President Ryan McMahon noted that auto insurance continues to influence overall inflation.

“Pricing action always lags behind what the consumer sees, and this pricing action is based on factors that were present months and this may shock you (years) previously,” he wrote on LinkedIn. “Some of those elements include the cost of new and used vehicles and there is some data to show that slowing down. Repair and medical costs continue to stay elevated. The only short-term fix, and I mean the ONLY one is matching rate to risk in ‘near’ real time.

“In auto insurance, that’s continuous monitoring [of] telematics. Not just any telematics program, the carrier must be able to see the evolution in risk over time.”

It’s an ever larger issue for consumers who aren’t in a telematics program because pricing actions will be based on aggregate market factors, McMahon added.

“The only way for you as a consumer to protect yourself is to establish your own risk profile with your insurance carrier,” he wrote. “Not in a telematics program, and have bad luck with a ticket or crash? Don’t be surprised if your price goes up 50% or more.”

McMahon included a Jan. 11 Reuters article with his post that cites “the highest annual increase for car insurance in nearly half a century,” of 20.3% in 2023, according to the U.S. Bureau of Labor Statistics, making “a notable upward contribution that may not be fading soon.”

Tom Simons, senior U.S. economist at Jefferies, told Reuters several factors are adding to rising auto insurance premiums including increasing costs for labor and parts to repair damaged vehicles and the overall rise in vehicle prices over the last several years.

Insurance industry professional and consultant Brian Passell shared with Repairer Driven News that, post-COVID and because of the inflationary economy, insurance companies, repairers, and everyone are at the stage of having to figure out the new insurance model.

“The biggest cost to claims is labor and no matter what era we’re in, how much investments in technology it can still be as high as 60% of the loss adjustment cost so they’re very labor-focused, which makes sense,” he said.

However, he added, not spending enough on claims can cause accuracy issues.

“I like the idea that AI and claims telematics are going to improve the customer side of this [rising costs], the repairer side, and the carrier side,” Passell said. “My hope is that the manufacturer, carrier, [and] repairer could sort of head off some of the problem by figuring out what’s the right way to do this? What’s the best thing for the consumer here? I think it’s going to happen because claims telematics lets you know when an accident happened; you ultimately, with more data, know how severe it was so replace the car or repair it.

“With the AI, we’ll have a more efficient use because, ultimately, adjusters will primarily be available when a decision has to be made. They’ll be available when a customer has an issue. But we’ll have a cheaper system with more consumer satisfaction. Right now, we’re just in an era that we’re all learning.”


Featured image credit: aluxum/iStock

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