Auto insurance market on 'collision course away from profitability': LexisNexis

By Alex Zank, Advisen

Auto claims severity worsened by nearly every metric throughout 2022, and the pricing and underwriting trends seen of late show no sign of changing direction so far this year, according to a recent report from LexisNexis Risk Solutions.

In its 2023 U.S Auto Insurance Trends Report, LexisNexis noted worsening claims severity, limited vehicle sales, and regulatory pushback on rate increases are “setting the market on a collision course away from profitability” for auto insurers.

“Looking at recent trends, the first quarter of 2023 seemed to follow the same trends as last year with few signs of returning to a soft market, making it even more important for insurers to have the knowledge and tools to help them remain profitable in 2023,” said Adam Pichon, senior vice president of auto insurance and claims at LexisNexis Risk Solutions.

Bodily injury, property damage, and collision severity all worsened in 2022, according to the report. While bodily injury severity increased 10% year-over-year between 2021 and 2022, BI severity is up 35% over 2019 figures. Property damage severity also remains nearly 35% higher than 2019 levels, and collision severity – the overall impact of a vehicle crash – rose nearly 40% since 2019.

LexisNexis also saw an increase from 24% to 27% for total-loss claims between 2021 and 2022, another contributing factor to claim severity. The increase is “significant, especially when you consider the time and effort required to settle these claims and current high vehicle costs,” the firm said.

Some of the most dangerous traffic violations, such as driving under the influence and distracted driving, returned to pre-pandemic levels. Speeding was the exception. Major speeding violations were 20% above pre-pandemic 2019 rates, and minor violations were up roughly 10%. Driving under the influence levels aligned closely with 2019 levels.

Insurers “dramatically” increased auto rates in response to rising claims costs, continuing a trend that started in early 2021. “We expect that figure to continue upward in the coming months, as additional rate increases are filed,” LexisNexis wrote.

More consumers shopped around, particularly in the second half of the year in response to rate increases. In some cases, the switch of insurers was due to poor claims experiences – in an August 2022 survey, 45% of customers who said they might switch insurers said they had to speak with “three or more people” to settle their claim. However, LexisNexis also found that 33% of survey respondents still switched insurers despite being satisfied with their claims experience.

Consumers were also more likely to switch policies when they shopped for new coverage. Record new policy volumes in November and December led to 10.2% growth in the fourth quarter. Much of the policy volume growth was in the independent agent shopping channel.

Reporter Alex Zank can be reached at alex.zank@zywave.com