How insurers can optimize their personal auto insurance books
Auto-book health initiatives that incorporate these six best practices can produce a significant return on investment.
Competing in today’s personal auto insurance market calls for rapid adaptation.
Loss costs returned to 2019 levels in the second quarter of 2021, and Verisk data indicates we’re heading into 2022 with pure premium eclipsing pre-pandemic levels.
While the pandemic’s third wave may temporarily pause a few rebounding trends, signs increasingly suggest an approaching hard market for the industry. Young adults are moving back home, miles driven have nearly rebounded to historical patterns, and rate increase filings face continued scrutiny from departments of insurance.
Accordingly, renewal underwriting programs may be more critical than ever to keep insurers’ books of business profitable.
Here are six best practices for auto insurers along with strategies for insurance leaders to consider in relation to competitiveness, customer experience (CX), trends and timing.
No. 1: Prioritize the pursuit of pandemic-driven premium leakage.
Why does it matter? Policy drift during the pandemic created the potential for premium recovery through policy scoring.
Verisk data shows pandemic-driven premium leakage rising after downward adjustments to mileage and commute-usage rating variables on many policies, triggered by the lockdowns of 2020. Now, mileage is rebounding as rush hour returns.
Another trend to watch: For the first time since the Great Depression, a majority of 18- to 29-year-olds live with their parents, according to the Pew Research Center.
Also of note: Amid closed driving schools and local motor vehicle departments, the pandemic initially delayed many young drivers from obtaining their first licenses. A recent Verisk client analysis showed youthful discovered drivers, or those under age 25 who should be listed on a parents’ insurance policy, fell from more than 60% of all discovered drivers pre-pandemic to around 30% between March and May 2020. However, levels have now returned to expected patterns.
As a result of this premium leakage and its impact on profitability, some insurers have reported that they are seeking rate increases. At the same time, Verisk client experience shows fraud is up and application integrity is down.
It’s a good time for insurers to true-up pandemic-driven premium leakage at renewal and align price to risk on critical rating factors that have shifted since 2020’s lockdowns. This effort can yield a significant return on investment (ROI) by updating mileage and commute factors, adding “hidden” drivers who should be listed on policies, and addressing garaging discrepancies.
The beauty of using ongoing, high-quality analytics to identify and score policies with the greatest potential for premium leakage is that it’s possible to determine the most impactful ones to prioritize for pursuit. As a result, insurers can optimize ROI while balancing retention and CX.
No. 2: Target re-underwriting with high-quality analytics.
When? Focus on rate integrity at renewal.
Underwriters know: Life events happen. Four out of 10 policies change drivers, vehicles or address each year, contributing in part to $29 billion in annual premium leakage for the industry, based on Verisk research. Pricing competitively can be easier when data and advanced analytics help to target suspected rating errors and maintain integrity at renewal.
Auto-book health initiatives can immediately help boost the bottom line. Monitoring changes in policy risk profiles and selectively adjusting prices with the help of analytics can enable insurers to stay competitive by growing market share, lowering loss ratios and improving profitability, all while reducing the need for rate increases that may face regulatory hurdles.
No. 3: Diagnose symptoms that limit program success.
What signs? Examine points of pain.
Like a quality physician, auto-book health experts test workflow functions, get a pulse on agent behavior, and probe for potential infrastructural fractures. How agents guide application inputs, conduct policyholder outreach and follow-through, override policy adjustment decisions, and staff key functions can sometimes undermine renewal underwriting initiatives. And data and analytics can provide insights into potential problems. If necessary, restructure your program to be more holistic and consistent. This can go a long way toward ensuring a program’s success. No. 4: Outsource skilled policyholder outreach.
To whom? Seek a reputable partner.
Scripted messaging that matches a company’s brand and voice can be used to contact policyholders in the channels that are most comfortable for each insurer including email, mail, web and phone. A customized pursuit strategy that outsources skilled policyholder outreach can free up in-house staff for more value-added work, making better use of internal resources, helping elevate CX and earning valuable renewal business.
Even when conducting policyholder outreach in-house, it’s possible to break down the re-underwriting program into manageable pieces, taking on a number of policies that match a staff’s technical abilities and bandwidth. Training in the soft skills of customer contact is another strategy that can pay dividends.
No. 5: Streamline policy adjustments using automation.
How? Leverage innovation.
An experienced auto-book-health provider can advise insurers on analytical and technological best practices to improve program workflows and impacts. An ecosystem of data, analytics and technology designed to work together can replace a fragmentary patchwork of solutions. Scale and efficiency can also be enhanced by keying in on the metrics and ROI of policy pursuit relative to available resources.
Even if an insurer does not fully automate a renewal underwriting program, having a focused back-office team to administer the program without competing priorities can result in smoother processes.
No. 6: Maintain book health consistently across underwriting cycles.
Where? Look for the intersection of capacity, CX and ROI and fine-tune adjustments over time.
Pursuing missing premium off and on over underwriting cycles may be detrimental to auto book health and can put an insurer at competitive risk. Test, learn and adjust based on business mix, desired customer experience and geographic footprint. Start the program in key states and expand it gradually to keep the rollout manageable. Consistent preventive maintenance conducted with an eye toward ROI and staffing considerations enable an insurer’s auto book to get healthy and stay healthy.
Some Verisk clients have found auto book health initiatives can generate an ROI of 7:1 in the first year and 22:1 over the life of a policy — all while helping to avoid adverse selection and establish a more secure market position.
See also: