How Technology is Helping Insurers in Rising Auto Claims Severity
Auto insurers are feeling enormous pressure from inflation and other economic conditions playing out in the US market. Fraudulent accident claims or scams and auto thefts are rising across the US, and costs associated with insuring drivers and their vehicles are simply just getting more costly on both consumers and the insurers who protect the drivers. It makes for a perfect storm of challenges impacting the auto insurance industry.
Adding to the problem, is the rising severity of auto insurance claims. PropertyCasualty360 reported auto claims severity has been growing with physical damage and bodily injury claims increasing more than 4.5% annualized from 2002-2022 as reported by the Insurance Research Council (IRC). Although claims were restrained until the 2010s, severity began to accelerate and surged during the pandemic as drivers “became more reckless and inflation accelerated.” The average loss cost, or average payment per insured vehicle, increased for most coverages following insurers’ necessity to balance premiums against the increasing severity of auto insurance claims.
According to the LexisNexis Risk Report, bodily injury and property damage claims have increased 35% since 2019 while collision claims severity increased by 40%. Speeding violations went up 20%, indicative to the shift of increasing collision and bodily injury occurrences happening on US roads.
Adding to the Problem
Additionally, insurers are also faced with the ever-increasing costs of repairs and replacement of vehicle properties, as well as the rising medical costs stemming from bodily injuries suffered during vehicular accidents. The technology built into hybrid and electric vehicles carry costly batteries requiring replacement even after a minor accident, while the raw materials used in vehicle manufacturing increased in price for much of 2023 including aluminum and steel; leading to surging costs in repairing damaged vehicles.
AM Best reported insurers struggled with the challenging regulatory process for rate increases in many jurisdictions making it “difficult for them to stay ahead of deteriorating severity trends,” Insurers are reassessing personal auto portfolios to address selection and price adequacy concerns, but reported auto insurers who had invested significantly in technology “to enhance underwriting, pricing, and claims handling,” overall, outperformed their counterparts.
What Technology Investment Means for Auto Insurers
It should come as no surprise that technology adoption is key for the insurance industry. Insurers can utilize various artificial intelligence resources to balance out the risks of claims severity against market challenges by:
- Optimizing processes and put massive amounts of data to optimal use
- Augmenting risk selection and underwriting processes by adding behavioral predictions at pre-application or renewal to current business rules
- Requiring use Internet of Things (IoT) devices such as telematics, motor accident sensors to detect FNOL, and driving apps to record safer driving habits and improve claims management
- Automating services, support, and manual tasks to hone risk modeling and predictions
- Support earlier detection of fraud or deterring future occurrence.
Capturing a Complete Risk Profile
Instead of assessing risk on the vehicle, relying solely on historical data to measure risk, or capturing the risk profile mid-application, data innovation and advanced One example is how AI can help insurers identify future outcomes including gaining insights into the level of claims severity in order to be better prepared should the claim occur. The power of innovative tech-driven solutions awards insurers a more robust and complete risk profile, as well as the ability to pinpoint the severity of an auto claim, and it’s possible with just a name and address.
Additional benefits from leveraging AI and automation in claims include:
- Boosting customer satisfaction, loyalty, and retention by transforming claim turnaround time from weeks to minutes
- Lowering costs and increasing scalability utilizing apps straight from customer phones
- Raising loan-to-value ratios (LTV) with automatic collision notifications, instant assistance, and automated claims processes
- Decreasing fraud such as ensuring more detailed information is recorded when an vehicle accident occurs
- Lowering loss adjustment expenses (LAE) with the ability for insurers to analyze claims faster, reducing cycle times, and boosting adjuster efficiency.
It is evident AI can impact the entire insurance value chain and deliver incredible opportunities in the near future. AI and massive volumes of data can provide significant benefits to insurers in better decision-making, reduction of errors and bias, and greater efficiency.
The US may be beginning to see inflation ease, but claims severity pressures in P&C are likely to remain as historical highs become the nationwide norm in terms of medical, vehicle repair and replacement, and social inflation costs compete against the industry’s ability to balance rates, the regulatory environment, and business innovation with stakeholder expectations.
2024 is Looking Better
Fortunately, 2024 is the year the industry is beginning to witness insurers leveraging technology and that has significantly positive implications. Moody’s reported 14% of insurance companies in the area of risk and compliance have already implemented or are testing AI solutions, and 55% of those 500+ carriers surveyed are considering introducing AI into their processes. The vast majority of risk management and compliance professionals who were early adopters (90%) reported AI was making a positive impact on the work in risk and compliance.
Technology has the potential to positively impact insurers and the industry as a whole, but it requires carriers to future-proof business by adopting these tools and resources while the market is hard and fast-track profitability in preparation for the soft market when it arrives.
Behavioral Predictions Can Help
Read the case study on how Pinpoint helped a national auto insurance carrier solve the problem of increasing claims payouts, increasing costs of labor and parts, and the inflation of goods using Claims Severity Loss Predictions. Pinpoint’s predictions helped unlock a 3-point loss ratio improvement that calculated into projected savings of $78 million in the first year and over $454 Million after year 3 through compounding improvements on its book of business of 715K insureds.
