Private automobile loss ratios surged from 55.6 year-end 2020 to 72.2 in the first three quarters of 2021, the highest level in a decade. At the same time, prices for new vehicles rose 11.8% last year, the largest rise since 1975. Higher physical damage severity added nearly six points to combined ratios of certain large insurers, with casualty severity contributing 4 more points. Used car value hikes were responsible for 60% of the six-point jump on the physical damage, with parts and labor cost inflation along with higher-impact accidents accounting for the rest.
As inflation has risen over the past year, so has the cost of auto insurance. Auto insurance prices edged up by 4% since last year, with some US states showing increases of nearly 20%. About a fourth of drivers reported shopping for new auto insurance in response to rising costs, and a fifth of those shopping ended up switching providers.
The push at carriers such as Allstate has been to make pricing refinements through telematics to offer fairer rates than traditional rate plans. The newest version of its Drivewise offering provides an incentive for safe driving by offering discounted rates based on how people drive. Allstate has had 100% growth of its telematics programs since March 2020.
The number of consumers who accepted a telematics device offer surged 33% since end of 2021. Today, all top 10 U.S. auto insurance carriers offer a telematics solution to their customers, the norm being to provide customers with the same discount, generally between 5% and 10%, regardless of how risky or safe they actually drive. With evolving advances, that is changing.
The number of telematics-based policies in force reached 16.1 million in Q4-2021 in Europe and is expected to reach 35.1 million by 2025. In North America, the number is expected to grow at a CAGR of 22.6% from 21.7 million in Q4-2021 to reach 49.0 million in 2025. European insurance telematics market is largely dominated by aftermarket black boxes while mobile applications followed by self-install OBD devices form the majority in North America.
As telematics usage grows and awareness improves, biases are emerging that necessitate further refinements. For instance, a Consumer Reports investigation revealed that rules can be confusing and opaque, and penalize people driving to or from a late shift—a group disproportionately made up of Black and Latino workers and low-income people. The same data that’s used to provide discounts could also be used for marketing, or by a claim adjuster if you do have an accident. The programs can unintentionally encourage undesirable behavior, such as telematics customers rolling through stop signs to avoid penalties for “hard braking”.
To continue to drive proposition transparency and fairness, carriers are seeking innovative partners or pursuing internal innovation. In the last 100 days, 100+ patents were approved for insurance telematics. Nearly 30 of these were from carriers.
A word cloud of the patent titles follows.
State Farm Automobile Insurance and Allstate Insurance lead the pack at 15 and 7 respectively. The number of patents from State Farm was more than Toyota’s, which was highest among auto OEMs. A third of State Farm patents were targeted to improved pricing or safety, while the rest included technical innovations to offer enhanced convenience.
Peering over the telematics and connected car landscape gives a glimpse of the future. Startups are innovating in Internet-of-Vehicles, Vehicle-to-Vehicle and Vehicle-to-Infrastructure solutions. Australia-based Connexion leverages the Internet-of-Vehicles to build cloud-based telematics, offering fleet management and music infotainment. HAAS Alert delivers vehicle-to-vehicle safety solutions, sending real-time alerts to autonomous and connected vehicles. Vehicle-to-infrastructure solution provider Sensefields allows cars to communicate with traffic lights, roadway signage, or rail crossings in real-time. The potential of telematics to impact the insurance industry is significant. From creating bespoke policies to making claims and fraud detection simpler, opportunities will keep emerging across the value chain.
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