Auto insurance in 2022: What the industry should expect
From more expensive claims to distracted driving trends, these are the movements shaping auto insurance today.
Change was a key theme for auto insurance during 2021. After auto usage and road volume declined to unprecedented lows in 2020 due to the pandemic, motorists have significantly increased how often they drive and even changed their driving behavior as public health measures have loosened. These changes have had a major effect on auto insurance carriers, and unfortunately, following an extremely volatile two years, there’s little indication that 2022 will bring much in the way of stability.
If you do much driving, you’ve probably thought that other drivers were not being quite as careful as they were before the pandemic. The data supports this impression. According to a large survey on distracted driving, 4 in 10 motorists said they use their iPhone while behind the wheel, a 13.7% increase over 2020, and more than half (55%) of Android users said the same, a 2.7% increase.
And traffic volume is up significantly compared with 2020. According to the U.S. Federal Highway Commission, traffic was down 11.3% in January 2021 over pre-pandemic levels in January 2020. But by November 2021, traffic was up 11.2% year over year.
The disruption of the supply chain combined with an increase in demand for cars, both used and new, has made it difficult to buy one. North American production of light vehicles fell 63% during the early days of the pandemic from Q1 2020 to Q2 2020, according to a report from KPMG. Then, just as demand for new cars was rising again, the semiconductor shortage caused production cuts, which have been compounded by a severe labor shortage — manufacturers had 584,000 job openings that they were unable to fill in October 2021.
As a result, many consumers opted to buy used cars, and prices for these vehicles rose 42% from December 2019 to October 2021. So, with people unable to find new and used cars within their budget, people are also holding onto vehicles much longer. The average age of a light vehicle on U.S. roads rose to 12.1 years in the summer of 2021.
A final factor is new technology. Cars are far more advanced than they were even five years ago, which has made vehicles much safer and more efficient. But if they’re in an accident and these technologies suffer damage, the total cost of repair will be much higher than they were before.
Outlook for auto insurance in 2022
Increasing damage severity: Insurers should expect higher claims, on average. In modern cars, sensitive technologies such as cameras and radar are mounted on the exterior, such as in the bumper. An accident that might have caused minor cosmetic damage to an older car can leave a modern one undrivable, because of damage to these sensors. So, not only will claim size grow, but motorists will require roadside assistance more often to tow their cars.
Additionally, because people own older cars, on average, it’s more likely that there will be a breakdown that will initiate a claim.
Roadside assistance: While it’s not the largest type of claim by amount, roadside assistance is by far the most common claim by volume, which means that it has an outsized effect on customer relationships and an auto insurer’s NPS. The last two years of extremely volatile traffic volume have had an enormous impact on the towing industry. After traffic volume plunged at the beginning of the pandemic, tow providers had to reduce staff and sell off assets like trucks and tow rigs to survive. So, now, with volume rising fast, tow providers are having trouble meeting demand. A HONK survey of more than 580 tow providers showed that over 20% of providers are having to turn away work.
Certainly, towing companies are working to bring on new tow operators and buy equipment, but right now, their No. 1 priority is to run as efficiently as possible, and that means doing jobs that are closest to available trucks first so that each operator can do as many jobs each day as possible. Towing and roadside program providers with location-based dispatching 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.
On the bright side: While there’s not much upside to the increasing size of claims and delays for roadside assistance, all these new technologies that now are incorporated into new vehicles will bear fruit for auto insurers. Telematics, for instance, will enable carriers to create highly accurate risk assessments of individual motorists that will change over time as drivers’ behavior changes. Carriers will no longer have to rely on demographic information alone, such as age, financial history, and education, but can instead analyze actual driving behavior in real-time. In addition, new AI-powered mobile technologies now enable some tow and roadside assistance program providers with the ability to capture accurate accident details directly from the scene to speed up claims. Claims adjusters are able to make more informed and instant claims decisions that reduce cycle times and lower costs.
Some telematics capabilities won’t become a reality for a while, because there are many regulatory issues to work through. But it’s clear that insurance is moving in this direction. This means that insurers who have embraced digital technologies will be better able than the laggards to take advantage of this wealth of data.
In conclusion, 2022 will feel a lot like 2021, at least at first. But the situation will return to equilibrium eventually, and with new telematics and AI-powered technologies starting to have an impact with individualized risk assessment, the long-term future looks bright.
Rochelle Thielen is the chief revenue officer at HONK Technologies.
Opinions expressed here are the author’s own.
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