Insurers examine MVR, independent agents, and fairness in pricing at the 2024 AIR Conference

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The auto insurance industry is the midst of a difficult few years. In 2022, the industry’s net combined ratio was 111.8%, the worst in the last 27 years…until 2023 when it ticked up to 112.3%. In response, auto insurance carriers began raising rates substantially, and in 2023 the ten largest auto insurance companies in the country each raised rates in the double digits and all but two ended the year with higher rate increases than the prior year.

With this struggle as the backdrop, Corporate Insight recently attended the annual Auto Insurance Report National Conference hosted by Risk Information in picturesque Dana Point, California. Leading auto insurance industry executives gathered to network and discuss how current and emerging market developments will shape and influence the industry’s future. Given the varied challenges the industry faces, the conference program encompassed a diverse range of topics. Here are CI’s key takeaways from three absorbing days at the 2024 AIR Conference.

A driver’s MVR is no longer a reliable data point and renewals are not the safe bet they used to be

Nicole Carangelo of TransUnion captured attendees’ attention with a presentation aptly titled Driving Blind. Carangelo explained how beginning in 2020, law enforcement activity changed nationwide and to offset the reduction in traditional traffic enforcement, more state are now leveraging automated traffic enforcement, but the way those violations are reported and handled vary significantly. TransUnion data reveals that while violation rates are down, they are increasingly important when it comes to predicting future losses. However, based on DMV audits and Annual Reports, states struggle to track and maintain accurate records for in-state and especially out-of-state convictions.

“How are insurers adjusting their driving record strategies to account for these trends?”

Nicole Caragelo – TransUnion

When paired with Adam Pichon’s message that a carrier’s renewal book is hiding undiscovered risk, insurers in the room were left shaking their heads. Pichon presented a Lexis Nexis study that sought to identify risks in renewal portfolios and examined 147 million policies (over 318 million policy terms) for policies renewing July 2022 through December 2023. They found:

  • Two percent of households have drivers that do not have insurance and will not be disclosed to the household carrier—these policies are 18% riskier
    • Of the 4.4 million drivers missed, 17% had prior claims and 10% had prior moving violations
  • Three percent of all new business policies have an unreported or updated claim at first renewal—these policies are 18% riskier
  • Seven percent of policies reviewed have one or more drivers with a closed/guilty violation in the six months prior to renewal—these policies are 90% riskier

In their wrap-up 20 Trends presentation, conference co-chairs Brian and Patrick Sullivan concluded (tongue partly in check) that given the high rates of insurance shopping at the moment, an insurance carrier almost needs to be worried when a customer wants to renew.

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Independent agents are here to stay

Over ten years since McKinsey released a (now) much maligned report that predicted the demise of the independent agent in the insurance value chain, the agent’s role within the industry continues to strengthen. In fact, the independent agency marketing channel is now so diverse that can hardly be considered a single entity. A newer trend is the rise of franchise insurance agencies that combine the sales freedom and product mix of traditional independent agents with the back-office effieciency of captive insurers with lead generation skills of direct response marketers. Lauren Menuey of Goosehead Insurance outlined the Goosehead model for attendees and detailed the company’s recent successes (1,226 operating franchised with 2,257 producing agents, about $3 billion in total written premiums, about 1.5 million policies in force, a CAGR of 38%, NPS of 92 and 86% customer retention.)

In their 20 Trends presentation, conference co-chairs Brian and Patrick Sullivan even warned the audience to watch to see if GEICO and other traditionally D2C insurers would explore entering the agency force through organizations such as Goosehead.

Fairness in pricing is NOT a crisis

Adrian Cuc of Verisk walked attendees through a study in which Verisk sought to determine the role of a driver’s race in their policy pricing. Using a generic rating plan for personal, Cuc randomly assigned race information via imputation based on the US Census ZIP-5 race distribution. Next, he simulated the process 20 times.

The results were stark:

  • Bodily injury variable – race (0.1%) was the least predictive factor behind territory (56.9%), driver class (16.2%), CBIS (15.5%), accidents & violations (3.5%), BI limits (2.6%), number of vehicles/drivers (1.9%), annual miles (1.5%), good student discount (1.2%) and symbols (0.7%).
  • Physical damage variable – race (0.1%) was once again the least predictive factor behind territory (33.1%), driver class (24.4%), CBIS (19.9%), accidents & violations (6.3%), symbols (5.4%), number of vehicles/drivers (5.1%), annual miles (3.7%) and good student discount (2.0%).
  • Collision variable – race (0.3%) was the second least predictive factor behind CBIS (26.7%), driver class (23.1%), territory (22.4%), symbols (14.2%), accidents & violations (6.8%), annual miles (4.5%) and number of vehicles/drivers (2.0%). Good student discount (.01%) brought up the rear.
  • Comprehensive variable – race (0.19%) was again the least predictive factor behind territory (42.6%), symbols (16.9%), CBIS (14.5%), driver class (11.6%), deductible amount (4.7%), number of vehicles/drivers (4.6%), annual miles (3.9%), good student discount (2.0%), accidents & violations (0.51%) and good student (0.39%).

Later, in his 2024 AIR Conference wrap-up 20 Trends presentation, conference co-chair Brian Sullivan declared that the industry is now convinced that broad, inappropriate bias is not there. Further, Sullivan noted that fears that states and NAIC may take a hard line when it comes to regulations have been assuaged as states have moved with careful and deliberate pace.

Check out our Insights section for more on the latest trends and conference summaries from P&C insurance and across the financial services industry.