Corporate Insight recently attended the 25th 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. Beautifully situated—overlooking the Pacific Ocean surf—and ideally timed, conference sessions focused on sifting through emerging industry developments as the US economy continues to recover from the COVID-19 pandemic and forecasting which high-impact trends which will fade and which will endure.
AIR Conference attendees assembled as the auto insurance industry faces numerous headwinds—a persistent disturbing increase in claims severity, inflationary pressures, continued supply chain disruptions and looming fleet electrification just to name a few—that contributed to a rough 2022 as well as predictions of an equally difficult 2023. Insurers have responded by raising rates nearly across the board triggering skyrocketing shopping and switching rates. Given the varied challenges the industry faces, the conference program encompassed a diverse range of topics. Here are CI’s top takeaways from three absorbing days at the Auto Insurance Report National Conference in California.
The collision industry is at an inflection point
Hami Ebrahimi and Shawn Hezar of Caliber illuminated the complex cocktail of difficulties faced by repair shops, which often find themselves caught between a rock (auto insurers) and a hard place (OEMs). The collision repair industry is currently struggling with:
- Increasingly complex cars – modern automobiles have so much technology packed into them that they are essentially massive computers on the road. After a collision, all that tech goes haywire and re-calibrating it is an expensive, lengthy process; all the while the carrier and insured are begging for the car to be back on the road.
- The National Safety Council projects up to 72% of U.S. cars will have at least one piece of ADAS technology by 2025 and in 2030 that number jumps to 96%
- Protech projects that by 2030 70% of all cars needing repairs will require calibration compared to only 32% in 2022
- Inflationary pressures – data from the Bureau of Labor Statistics reinforces how inflation has eaten into repair shops’ bottom line. The cost of used vehicles, maintenance and repair, energy and parts are all higher than the bureau’s CPI.
- In a related development, higher interest rates raise the cost of borrowing which in turn increases investment pressures
- An acute labor shortage – many repair shops in the understaffed and the labor shortage worsens each year as new positions, replacement positions and past unfulfilled positions remain empty.
- Deepening this issue, it takes approximately six years to fully train a body technician
- Further, repair work can be physically demanding and as the aging workforce scales back their hours, the already destabilizing labor shortage could evolve into a crippling issue
EVs are going to transform insurers’ books of business
With EVs projected to represent close to 20% of global automobile sales in 2023, no one can claim they are sneaking up on the industry. Given their increased prevalence, however, insurers remain unsure how to underwrite EV policies. Leveraging the Chinese market as test case, Xiaohui Lu of LexisNexis risk solutions presented an engaging session that outlined how EV risks differ from ICE vehicles how those risk manifest on insurers’ ratios
- When it comes to the vehicle itself, EVs are riskier – these cars have higher max torque motors and are powered by high cost batteries. Further, the data reveals that One Pedal Driving is much riskier than the traditional Fuel + Brake driving experience. Lastly, mid-size EVs with long ranges are popular for ride-sharing, increasing risk exposure.
- Looking at EV drivers, they are riskier too – EV owners tend to be younger and less experienced drivers than those of ICE vehicles. Additionally, research suggests that drivers who switch back and forth between an EV and an ICE vehicle struggle to adjust.
- The data also reveals that private EV owners tend to buy policies with higher limits and that insurers currently lack a strategy when it comes to pricing property damage or liability risks of charging stations.
Embedded insurance remains a tantalizing, if not yet realized, opportunity for auto insurers
Auto insurers have been brainstorming approaches to developing an embedded insurance product for years, but since Carvana and Root announced a partnership in 2021 embedded insurance has become an industry buzzword. William Pitt of Conning walked attendees through the “promise and perils” of embedded insurance, which he defined as insurance that is offered largely online in conjunction with other, noninsurance products and services.
- On the positive side of the ledger, embedding insurance within an extraneous purchase process reframes the concept for the consumer, not as a laborious chore but as a delightfully simple exercise. Further, the cost of insurance compared with that of the overarching purchase may look like a small price to pay. Lastly, the selling brand may be more familiar to, and more trusted by, consumers than insurance companies typically are.
- On the other hand, though, the lack of choice presented by an embedded product may cause consumers to question whether they are getting the best deal. Additionally, it requires a persuasive intermediary to make the case and they may not want to jeopardize the larger deal they just negotiated. Finally, regulatory issues have the potential to add significant friction to the insurance purchase process.
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