It’s been a wild year for insurance, and for auto insurance, in particular. As the pandemic and local governments’ responses to it have evolved, motorists have significantly changed their driving frequency, driving behaviors and ownership patterns. And, unfortunately, there’s no reason to think that 2022 will be any more settled than 2021.
For starters, driving patterns have been fluctuating dramatically. In January 2021, travel on U.S. roads and streets totaled 223.3 billion vehicle miles, down 11% compared with the same month in 2020, according to the U.S. Federal Highway Commission. By November 2021 (the most recent month for which data is available), there were 278.4 billion vehicle miles, a 12% increase over November 2020. In fact, though traffic was down significantly in the early part of 2021 over 2020, by November, total vehicle miles for the year was up 11%!
In addition, it’s common to hear people complain that motorists seem to be driving worse than before the pandemic. Statistics show that it’s not our imagination: The Zebra’s annual survey on distracted driving found that 40% of respondents said they interact with their Apple devices while driving, a 14% increase over 2020, and 55% of Android users said they did so while behind the wheel, a 2.7% increase over 2020.
People are also holding onto their cars longer than ever before, with the average age of vehicles on American roads climbing to 12.1 years in June 2021. Supply chain disruption caused a shortage of new cars on the market just as demand for vehicles soared. As a result, the price of a used car rose by anywhere from 32% to 36% in 2021, depending on whom you ask.
Finally, new cars have significantly more technology than older cars. And while these technologies do increase driver safety and prevent accidents, when there is a wreck, damage will be more costly to repair.
See also: 5 Trends Changing Auto Insurance
Impacts on Auto Insurance in 2022
Lasting impact of new vehicle technologies: Damage severity is increasing. That’s not surprising, with so many sensors embedded in the bumper and other exterior areas of a car. A simple fender bender can damage these sensors to the point of making a car undriveable. As a result, the average claim will grow, and roadside assistance will be required for accidents that previously left vehicles perfectly safe to drive.
Insurers’ roadside assistance programs will also be affected in another way, because, as vehicles become more complex, it’s more difficult for a single towing and roadside assistance service provider to become specialized on all vehicles. For example, at least half a dozen car models have no exterior door handles, or they have handles that only pop out when a fob is present. This makes lockouts much more difficult to perform. It’s not out of the question that five to 10 years from now, tow providers will need to work through secured software or remote relationships to get these vehicles open, jumped or even towed.
Another factor will also increase the severity of damage. People are holding onto cars far longer than they used to, and, the older a car is, the more likely it is break down at some point and initiate a claim.
Roadside assistance programs: Roadside assistance is by far the most common claim for auto insurers, and the whipsaw trends in traffic volume have caused significant disruption. When traffic volume cratered in early 2020, tow providers had to lay off employees and even sell trucks and equipment to survive. Now, with traffic volume surging, they’re scrambling to keep up. In fact, a recent HONK survey of more than 580 tow providers found that more than one in five are having to turn down work. Tow business owners are working to hire employees and buy trucks so they can meet demand, but, in the meantime, the survey shows tow providers are prioritizing jobs that are closest to an available truck. Dispatching systems that take location into account can help reduce wait times for customers, but until the supply-and-demand imbalance is righted, insurers’ customers will likely see longer than usual wait times for help across the board.
Opportunities ahead: Despite the difficulties, there are big opportunities ahead for auto insurers. One of the largest involves telematics that can help with risk assessments and claims management. As a result, insurers can get a much more accurate, up-to-date picture of an individual’s risk, managing it in real time on a trip-by-trip basis. Instead of basing risk on predictors like financial history, where a motorist attended college and where the car is typically parked, insurers can look at individual behaviors in real time.
See also: Nonstandard Auto Insurance's Key Role
There will be a lot of regulatory hurdles to overcome, but the momentum is clearly behind applying more sophisticated telematics to risk assessment. Insurers that have thoroughly digitized their operations will be well-positioned to capitalize on this massive amount of data once it becomes possible for insurers to access and use it.
In sum, 2022 will look a lot like the second half of 2021 for auto insurers. But it’s also clear that there’s much opportunity for insurers to lay the groundwork to differentiate themselves and position themselves for growth once the disruptions caused by the pandemic settle out.