The Road Ahead for Auto

The auto insurance market is shifting gears.

Last year, the sector saw premium growth, lower retention rates and improved loss ratios, leading to a softening market and increased profitability.

However, it’s a winding road, according to the 2025 annual LexisNexis Risk Solutions U.S. Auto Insurance Trends Report, “Market Shifts Shaping U.S. Auto Insurance”. Consumers continue to shop and switch at record levels while driving goes electric and claim severity and driving violations are on the rise.

Rising Rates Slow: While rates jumped an unprecedented 15% in 2023, 2024 saw rate growth slow to 10% year over year. Direct written premiums increased 13.6% to $359 billion in 2024, just slightly lower than the growth in 2023 (14%). Incurred loss ratios also improved steadily throughout 2024, with each quarter measuring about 10 percentage points lower than the same quarter in 2023.

Those insurers who returned to profitability are reexamining rate changes, with many filing for rate decreases for the first time in many years. But insurers are also watching tariffs, which could set off a domino effect, forcing higher rates, said LexisNexis.

Stop and Shop: Decreasing rates may not be enough to improve customer retention. Record numbers of consumers shopped for new auto insurance, with more than 45% of policies shopped by the end of 2024.

New business growth outpaced auto policy shopping in the first half of the year as insurers staggered rate increases across states and consumers could find better deals. As rates rose throughout the year, shopping outpaced switching.

Even long-term policyholders were looking for something new, with long-tenured shopping hitting 35% by the end of Q3 2024. Since 2021, policy retention has dropped from 83% to 78%. Surprisingly, seniors were among the most frequent shoppers and switchers, with drivers aged 66 and over switching more than any other group.

Home insurance pricing also influenced auto shopping as consumers shopped for lower property insurance premiums and took auto along for the ride.

Distraction and Other Driving Dangers: Distracted driving violations rose 50% in 2024 over 2023. Other moving violations were also on the rise, including major speeding (16%), minor speeding (25%) and driving under the influence (8%). Overall, moving violations were up 17% year-over-year in 2024.

While traffic fatalities decreased 3.8% from 2023, according to the National Highway Safety Administration, the number of road-accident-related deaths is up 11% over the average for the decade preceding COVID-19, with distracted driving accounting for an estimated 3,000 deaths in 2024.

The loss cost tied to a person who has a distracted driving violation snowballs to 108% higher than for someone with no violations. Drivers ages 16-45 generate 72% of distracted driving violations in the U.S., with drivers aged 26-36 generating 49% of distracted driving violations.

EV Adoption: Electric vehicle (EV) sales rose 8.9% in the U.S. in 2024, outpacing the 2.6% growth in sales for other types of light-duty vehicles. The total number of EVs insured in the U.S. grew by 40% to 5.6 million. By the end of 2024, EVs accounted for 2.1% of all vehicles on the road, while the number of paid EV claims was 2.4% of the total number of paid private personal auto claims and 3.1% of the total amount of payment to PPA claims.

When comparable households replace their old vehicles with new EVs, they incur 31% higher claim loss cost due to 14% higher claim frequency and 15% higher claim severity, with a 20% higher frequency and 30% higher severity for collision loss costs.

Coverage, Claims and Cost: All of these changes have impacted the overall claim cycles and costs. Days to first pay have improved across bodily injury, property damage and collision coverages. While BI severity increased 9.2% year over year, PD severity increased 2.5%, and CO severity decreased 2.5% year-over-year. Total loss claims continue to rise, with 30% of CO resulting in total loss.

Topics
Trends
Auto
Pricing Trends