What the insurance industry needs in 2023 – Part 2

With the increases in risky driving behavior and claims severity on the rise, insurers will need to leverage traffic violation data to better anticipate future risk and proactively adjust rating plans. (Photo: CARLOSRAMOS/Adobe Stock)

PropertyCasualty360.com editor’s note: This is the second part of a three-part series. Part one can be read here.

In part 1, we overviewed some of the conditions that laid the groundwork for a very unprofitable year for insurers in 2022. We pointed out the need for collaboration and exploitation of technology and data analysis to be able to turn 2023 around. We also outlined some of the most important questions that need to be answered to ensure insurers and consumers continue to benefit.

Here in part 2, we will continue our analysis and demonstrate how careful, strategic data collection, data analysis, collaboration across the industry and consumer education on the value of data as it concerns their policy premiums will be what drives mastering the challenges of the ever-evolving insurance marketplace.

Collaboration helps profitability and enhances customer experience

Within the auto insurance industry, inflationary concerns, vehicle shortages, increased costs to repair cars, and post-pandemic new driving behaviors have seen insurers go from record-setting profitability in 2020 to widespread unprofitability in 2022. Looking ahead to 2023, insurers will be keenly focused on returning to profitability while also driving top-notch customer service in the face of rate hikes that are expected to continue into next year. So how do we help enhance insurer profitability while finding a price that is appealing to the consumer?

It’s all about accessibility, shared data and analytics that help drive insurers’ strategic imperatives. A major trend we have seen in the wake of the pandemic is an uptick in driving violations, notably DUIs, moving violations and distracted driving. From our telematics data, we see that high-speed driving, as defined by miles driven at speeds in excess of 80 mph, was up almost 9% in 2020, and 10% in 2021, as compared to 2019.

As driving patterns changed, the severity of claims also increased. Beginning in April 2021, property damage severity saw a drastic spike, peaking at a 14% year-over-year increase in August. This was likely due in part to inflation that impacted parts and labor costs, along with supply chain issues that caused longer cycle times.

What do we do with this knowledge? With the increases in risky driving behavior and claims severity on the rise, insurers will need to leverage traffic violation data to better anticipate future risk and proactively adjust rating plans. By studying motor vehicle records (MVRs) — and the ability to identify violations that could be missing in an individual’s MVR, we can work together with the insurance industry to assess risk more accurately.

We have also seen a trend in the use of advanced driver assistance systems (ADAS) features to help drivers avoid collisions. We analyzed 11 million randomly selected U.S. vehicles within model years 2014 through 2019 and found that ADAS-equipped vehicles showed a 23% reduction in bodily injury claim frequency and a 14% reduction in property damage frequency, but also found that severity for ADAS-equipped vehicles increased only slightly. The shortage on supply and inflation changed the equation on cost, but not on collision avoidance and collision impact. Vehicle-centric data is becoming more significant to our broader view as cars continue to offer ADAS and other safety-related packages as add-ons to base models. In 2023, insurers with this type of information will continue to have a leg up, but consumers need to know this so that they can make their own best choices.

A broader view helps keep  roads safer

According to the National Highway Safety Administration, during the first nine months of 2021, fatalities increased in 38 states, remained flat in two states, and decreased in 10 states and the District of Columbia. In 2021, approximately 43,000 people lost their lives in traffic accidents, a 10% increase from 39,000 in 2020.

In 1997, an initiative was launched in Sweden that now translates to Vison Zero. A Vision Zero plan demonstrates a commitment to implement efforts to reduce traffic fatalities and serious injuries to zero. Vision Zero has now been adopted across much of the U.S., and Vison Zero for law enforcement agencies is set at zero traffic fatalities by 2050. We know that more officers on the roads help reduce the number of fatalities, and helping communities to better understand the intersections and areas where the most fatalities occur helps them better understand the law enforcement presence.

It starts with data sophistication. Every step forward is progress toward proactively improving traffic safety and reducing fatalities — automating workstreams to get from reactive to proactive to ultimately preventive, and this preventive approach is the premise of Vision Zero.

By also helping law enforcement officers automate processes like citations and police reports, it’s cause and effect, we can more efficiently drive the workflow of crash reports in the insurance claims workflow. About 700,000 police reports monthly expedite the claims workflow and reduce the burden on law enforcement. Then, they can spend more time helping their communities reduce fatalities and other important work. Again, it’s that broader view being put to work.

Home ownership is becoming more complex

For many consumers, their home is their most important asset. In 2021, we saw the second-highest number of new building permits in the past 15 years. People are investing in their homes, maybe adding a home office, or just finally getting around to making needed upgrades. Do these changes impact replacement cost? Roof age? Do they improve risk due to upgrades to plumbing or electrical?

At the same time, new business creation is also at historical highs. The number of new business applications in 2020 set a record and then went up another 24% in 2021. We hear frequently about people that have left the job market, and now, many are starting their own businesses. And as we know from the Small Business Association, about 50% of all businesses are home-based.

Climate change is also an emerging factor in the home insurance industry. As different climate patterns have emerged in recent years, the evidence is compelling:

• The warmest six years on record have occurred since 2015.
• Eight of the 10 largest wildfires in California history have occurred since 2017.
• The number of strong storms is increasing.

As one might expect, these developments have resulted in an increase in property and casualty claim costs. The National Oceanic and Atmospheric Administration reports that there has been a 2.3 times higher rate of billion-dollar disasters in the last five years than the past 40 years. Additionally, wind, hail, and weather-water perils alone account for over 50% of property losses.

Obviously, all this means home insurers have more to consider than ever before when it comes to serving their customers, and most carriers today do not have the resources to investigate every property. And this is where we can continue to collaborate on that broader view. For more than 20 years, we’ve partnered with the home insurance industry on policy data through their contributions to assist in identifying policies that require a deeper dig.

The next step in broadening insurers’ views and improving customer experience is taking place as we speak thanks to artificial intelligence. In 2023, what’s imperative is a transformative platform for property risk assessment that integrates data analytics with end-to-end property inspection insights to optimize workflows throughout the policy lifecycle — from new business to renewal and claim. The combined data assets bring comprehensive information about the property’s interior, exterior, roof and other property-related risks without the need for a physical, in-person inspection.

The claims process and combatting total loss costs

Total loss claim frequency continued to rise in 2021 for the fifth consecutive year, with approximately 23% of claims resulting in a total loss. The percentage of collision losses that were totaled has increased 35% since 2016, which is notable because data indicates a positive correlation between total loss customer experience and policy shopping. The rise in total loss cost claim frequency can likely be attributed to several primary factors. First, as previously noted, riskier driving behaviors compounded by a post-pandemic uptick in miles driven is leading to sharp increases in bodily severity injuries as well as collision severity. In fact, collision severity — or the quantifiable impact or damage of a crash — was up 23% in August 2021 compared to the same period in 2020.

It’s not just riskier driving behavior leading to the uptick in collision severity. Historical highs in new and used vehicle prices are making cars more expensive to repair. According to the U.S. Bureau of Labor Statistics, prices for new cars and trucks are 16.40% higher in 2022 versus 1997 (a $3,280.27 difference in value). Between 1997 and 2022, new cars and trucks experienced an average inflation rate of 0.61% per year.

And while total loss is a very real problem for insurers and consumers alike, those insurers who are armed with the right data stand poised to settle total loss claims faster and with more accuracy. With a broader view of critical information such as registered owner name; titled owner name; lienholder; mileage; branded title status; state taxes and fees; and lienholder payoff information — all delivered to the front of their workflows through a single solution, insurers can significantly expedite the claims process for policyholders, increasing customer satisfaction.

It’s clear that the key to future profitability is taking a broader view by combining technology, data collection and analysis and top-notch customer service. In part 3, we’ll summarize our findings, digest their implications and set out a course of action for future success.

Bill Madison is chief executive officer of the insurance segment of LexisNexis Risk Solutions. He is responsible for all auto, home, life and commercial insurance business including solutions for underwriting, claims, and analytics, for the U.S. and international markets. Contact him at [email protected].

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