Auto insurance in 2023: Will your company sink, swim, or soar?

Arity’s subject matter experts share their predictions for 2023 and how the way auto insurers respond can make them sink, swim, or soar.

The year 2022 has definitely rocked the auto insurance boat, and all those aboard – i.e., all stakeholders – are growing more and more concerned. The U.S. inflation rate is the highest it’s been since 1982, the number of first-quarter traffic fatalities is the highest it’s been since 2002, and many companies have responded by raising prices or laying off a portion of their workforce.

Auto insurance leaders, along with many other industry “captains,” are faced with rough waters as we move into 2023. To help navigate, our experts delved into industry trends and our driving behavior dataset – which leverages more than 200 million connections to U.S. drivers – to form auto insurance predictions for next year. Here’s what we anticipate:

2023 auto insurance predictions

Auto insurance rates will continue to rise

Right now, we’re all operating in an environment where many uncontrollable, outside factors are impacting business success.

  • In addition to inflation, auto insurers are also struggling to handle the rising frequency and severity of auto insurance claims.
  • With people driving more, our dataset also shows an increase in risky driving behaviors.
  • According to a recent report, claims costs have been outpacing auto insurers’ rate increases.

So, in an attempt to stay afloat in this less-than-ideal environment, we predict auto insurers will rely heavily on factors that they can control for next year – which includes their rates.

Auto insurers will look for ways to minimize costs

Similarly, we believe auto insurers will look for ways to minimize their costs next year as another tactic to take control and improve their profitability. This year, we’ve seen rising claims costs due to:

  • higher labor costs due to skilled labor shortages
  • higher part costs due to inflation, supply chain disruptions, and global chip shortages
  • higher used car prices
  • an increased adoption of Advanced Driver Assistance Systems (ADAS) features in new cars, which rises the cost of replacements or repairs

In response to the dramatic spike in operating costs, major insurers have slashed their advertising budgets.

Because of this, we expect auto insurers to continue to be extra cautious with their budgets next year. However, it’s unknown if that will materialize through simply cutting costs or through cost optimization.

Rather than relying on cutting costs, businesses should look for ways to optimize their costs for higher ROI.

Consumer shopping will continue to rise

Just like businesses, consumers are struggling with rising costs and, as a result, looking for ways to take control and improve their own financial situation.

As they search for ways to minimize expenses, auto insurers are in danger of losing customers to competitors with better prices. In fact, a May 2022 survey found that 39% of auto insurance customers had shopped for a new carrier since the beginning of the year while 21% of those actually switched.

And out of those consumers who aren’t currently switching, many are embracing telematics as a way to gain control over their pricing – or at least, to secure fair and transparent pricing. The same survey found that the number of auto insurance customers who opted into a telematics program rose from 49% to 65% from January to May 2022. And the average pricing satisfaction among those participating in a telematics program is about 59 points higher than customers overall.

Based on these insights, it’s clear that telematics can be a strategic customer-retaining solution for auto insurers concerned with losing their policyholders.

3 ways to take on 2023

As 2023 quickly approaches, auto insurance leaders are tasked with choosing how to respond to the challenges that are following us into the new year – not an easy job. As a strategic partner for auto insurance companies, here are our thoughts on the three ways to respond:

Do nothing and sink

While the easiest response is no response at all, it’s likely the worst possible way to take on the new year.

The rate of inflation coupled with the rise in claims costs is making it difficult for auto insurers to remain competitive. We’ve already seen a shift in the list of largest auto insurance companies this year, so how these businesses choose to respond to these challenges next year will be critical.

Counteract and swim

Another way to respond is to counteract the challenges, and that’s what we’ve seen a lot of companies relying on this year. Businesses across industries have announced major layoffs and budget cuts as a way to counteract the negative financial impact they’re experiencing with inflation. For insurers specifically, we’ve seen rates rise.

While those difficult decisions may be necessary for companies to stay afloat, it’s only a short-term solution that won’t help them grow their business into the future. And the reality is raising rates can only go so far before customers start to shop around for better options, which is especially true for the safer, lower-risk drivers that provide the greatest lifetime value to insurers.

Innovate and soar

Our industry experts’ top recommendation is to invest in innovation to push ahead of the competition next year. Rather than relying on cutting costs, businesses should look for ways to optimize their costs for higher ROI.

This year’s success story is Progressive moving into the top slot as the largest U.S. auto insurer. According to GlobalData, an information services company, that win was partly driven by expanding its commercial motor business and investing in advertising campaigns. Similarly, Berkshire Hathaway’s Vice Chairman of Insurance Operations, Ajit Jain, attributed a part of Progressive’s success to innovation with its relatively early adoption of telematics.

In 2023, we encourage auto insurers to invest their budgets into things that will bring in business value and growth. Rather than just “staying afloat,” or barely making it through these tough times, investing in innovation will set companies up for long-term success.

If you’re interested in growing your business next year, check out Arity’s telematics insurance solutions:

  • With Arity IQSM, insurers can ping our database to access insights into a person’s driving behavior at time of quote. This solution not only helps carriers price risk more accurately – and therefore, more profitably, but it also helps retain your safest drivers who want lower rates to reflect their lower risk.
  • With our marketing solutions, Arity Audiences and the Arity Marketing Platform, marketers can target drivers based on driving behaviors, including risk, mileage, and commuting habits to maximize engagement and conversion. For auto insurers, this can make your marketing dollars do more by efficiently targeting the top 25% of scored drivers, who have a lifetime value of up to five times greater than the average driver, with personalized, omni-channel messaging.
  • With our Mobility Intelligence solutions, insurers can better predict changes to frequency and severity by leveraging unique insights into actual driving behavior on the roads in real time – things like miles driven, risky behaviors, and more which can be tailored to your specific planning needs.

Ready to learn more? Contact us to start a conversation!

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Arity is a mobility data and analytics company. We provide data-driven solutions to companies invested in transportation, enabling them to deliver mobility services that are smarter, safer, and more economical.