How auto insurers can overcome today’s tough challenges, beyond raising rates

Auto insurers face higher claims costs and a rise in risky driving behaviors. Apart from increasing rates, how can carriers mitigate loss?

Auto insurer’s profitability continues to be under pressure this year. While some factors – like the state of the economy – are out of their control, there are tangible ways to improve loss ratios and even come out ahead, beyond simply raising rates. But before we tackle the problems, we need to know: What problems are insurers currently facing?

Here are two major trends we’re currently seeing:

#1 The auto industry is experiencing higher claims costs.  

Inflation, supply chain disruptions, and the global chip shortage are contributing to higher claims costs. Specifically, for auto insurance companies, these issues are resulting in higher labor and part costs which subsequently impacts insurance rates.

#2 Risky driving behaviors are on the rise.

With the world’s largest driving behavior dataset tied to claims, Arity has a front seat look at the continued shift in how people are driving. Following the onset of the pandemic, we’ve seen that auto frequency is up while severity has increased dramatically. Here are a few key sub-trends to keep in mind:

  • People are driving more.Our analysis of driving in May shows that the total miles driven per month in 2022 are outpacing miles driven in 2021. Southern states and rural counties are exhibiting the highest concentration of increased miles.
  • Distracted driving is on the rise.  Our data shows the number of phone distracted driving events is rising for 2022. In May, we saw an average of 19 phone usage events per active driver, compared to 17 at the very beginning of the year.
  • Speeding is elevated. The number of speeding events is still high compared to pre-pandemic levels. For context, speeding spiked after the onset of the pandemic and reached its highest levels in 2021. While we have seen improvement compared to last year, we still haven’t been able to fully decrease to a “normal” frequency for speeding events.
  • High severity crashes are increasing. Along with the uptick in risky driving behaviors, the number of severe crashes is also trending higher. This insight is alarming since traffic fatalities reached a 16-year high in 2021.

How can telematics lead insurers back to profitability?

With costs and risky driving on the rise, carriers – more than ever – need to look for innovative ways to stay competitive. The traditional solution of raising rates can only go so far before customers start to shop around.

As we move into the end of the year and make plans for 2023, here’s how telematics can help insurers mitigate loss and come out ahead:

  • Gain and retain more profitable customers. Telematics-based rates are increasingly becoming a selling point as customers look for ways to control their own costs. In fact, recent TransUnion surveys found that the number of people who opted into a telematics program offer has risen from 49% to 65%. It’s seen as a more equitable measure of risk since it’s based on a person’s driving behavior versus uncontrollable factors like age, gender, zip code, etc.
  • Price accurately and competitively. Telematics provides a more accurate snapshot of driver risk since it allows insurers to capture and analyze information on a customer’s driving behaviors and quote them accordingly. So, carriers that leverage telematics data can worry less about overpricing low-risk drivers (and as a result, potentially lose them as a customer) and losing money by underpricing high-risk drivers.

Taking telematics to the next level with Arity IQ

Our latest insurance solution, Arity IQ, helps carriers take telematics a step further with instant access to customers’ driving data at time of quote. Similar to requesting a credit score, insurers can ping our Arity IQ database, request a person’s individual driving score, and we will deliver it – instantly.

While current telematics programs rely on a “test period” – monitoring a person’s driving habits for a set timeframe – to produce a quote, Arity IQ offers the ultimate real-time risk assessment. We partner with mobile apps to collect and analyze the day-to-day driving behavior data of 45+ million consumers, creating the most accurate picture of individual driving risk to date.

With Arity IQ, carriers can:

  • Understand a driver’s risk upfront. Because we have already collected actual driving behavior via mobile apps consumers use every day, you no longer have to wait for customers to opt into a telematics program.
  • Match more of your customers. Our unique understanding of driving risk combined with our relationship with third party apps doesn’t exist anywhere else. With Arity, you have access to a driving score match on more of your customers with our database of 45+ million consumers, and growing.
  • Score with confidence. With the largest database tied to actual claims, you can tap into credible data at scale that combines driving behaviors with matching claims built to predict insurance losses.

Ready to learn more? Contact us for a demo.

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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.