2025 Predictions: Auto Lines Turn the Corner for Good
As insurers continue to publish their financial performance for Q3 2024, a collective sigh of relief may be heard across the industry. The P&C industry is gradually rebounding from consecutive years of huge underwriting losses and auto lines are showing the most improvement in 2024 - gradually, emerging out of some horrendous couple of years.
A recent report by Alan Demers and Stephen Applebaum, describes how premiums and underwriting actions are reshaping insurance products and customer responses. And the hidden factor - fewer claims being filed, probably a result of the fear of rising premiums and higher deductibles with more repairs being funded out-of-pocket.
While these appear to be positive developments for auto insurers, they could prove short-sighted. Consumers will continue to struggle with affordability and rising premiums, and the crippling costs of owning and repairing vehicles will likely drive low-cost competition from new insurance entrants.
Unpacking the rising costs of auto
2020-2024 has witnessed \ some of the most volatile years on record for anyone dealing with auto lines. And, despite gains made through underwriting improvements in the last quarter, long-term affordability concerns will impact insurer’s ability to continue raising premiums.
In a recent report, Progressive describes 8 challenges that impact the cost of maintaining and insuring vehicles: car production shutdowns; chip shortages; the EV revolution; Russia-Ukraine war; risky driving behaviours (texting??); shortage of automotive technicians; increase in stolen vehicles, and autoworker strikes.
At the height of the crisis, Swiss RE report shows, US insurers paid out a whopping $243B in 2022, with underwriting losses of $53B in 2022-2023. Longer term, these trends are unlikely to slow down - especially given the rising cost of raw materials, shortage in technical labour and shutdowns of manufacturing plants (see VW in Europe and Stellentis struggles).
The road ahead: can 2025 be the year that auto insurers figure out how to reduce cost rather than raise premiums?
Raising premiums is clearly not sustainable - but there are ways to significantly reduce the operating costs of dealing with auto claims, as well as avoid risky drivers at underwriting.
- Smart triaging to remove operating claim costs
Having analysed hundreds of millions of vehicle damage cases over the years, we realized that Total Loss can be predicted with well over 90% accuracy.
Moreover, repair types and costs can be predicted based on a set of quality images.
These provide immense savings to both insurers and repairers: rather than towing the vehicle to a bodyshop, the vehicle can be taken to salvage and begin the conditioning process based on quality images taken at First Notification of Loss. Insurers overseas report a reduction of 50% in average cycle time through such smart triaging, translating into fewer days of replacement vehicle provided to customers and avoided towing and storage fees.
- Smart condition scanning at underwriting to manage risk
In addition to checking driver records, vehicle scanning is a simple step at underwriting that can expose prior damage, unauthorized use (commercial driver applying for non-commercial insurance), and high-risk customer through analysing the scan of the vehicle.
Well-kept vehicles are driven by good drivers. Leading carriers now de-risk their underwriting process by asking their customers to to perform an AI-based vehicle scan, which help reduce the driver risk as well as excessive repair cost due to unrelated damage.
Keeping quality record of insured assets ensures efficient and rapid claim processing where new damage is separate from existing damage, reducing inflated repair costs and allowing for automated quote approval and claim settlement.
- Speed is more important than cost accuracy
As costs of repair rise, many insurers will typically gravitate towards even more control of each and every case. This adds significant overhead and time to the claim process, and rarely results in real savings, as the cost of professional appraisers outweigh the benefits of arguing over marginal costs in the repair quote.
In fact, our data shows that repair quotes are fairly standard across similar population of vehicles and damages.
This means, that the 80%-20% rule applies here: you can assume that 80% of the quotes can be dealt with at 20% of the cost, and only the really complex cases require in-depth review.
Insurers that want to truly save on their auto claim should now consider using technology to capture solid images of vehicles and to triage the claims to ‘complex’ and ‘straightforward’, adopting fast settlement and instant approval methods in a meaningful way.
The cost pressures in the auto business and the rise of technology have made 2025 the year where the industry can potentially turn the corner, making digitally-savvy insurers the big winners.
The industry is evolving—staying informed and being agile will be key.
