Tag Archives: auto insurance

Pivotal Moment for Innovation in Auto

Traffic is back. Are insurers ready for the inevitable rise in auto accident claims?

Motorists filed fewer claims during the pandemic, as lockdowns reduced the number of cars on the road. Data from Allstate, GEICO and Progressive show that claims frequency fell by 27% to 30% in 2020 for physical damage claims and 25% to 30% for bodily injury.

But those numbers don’t tell the whole story. Driving in the U.S. became more dangerous last year. As traffic volumes declined, risky driving behaviors, especially speeding, surged – and so did traffic fatalities: up 8% in 2020 over 2019 in total numbers and up an astonishing 24% per 100 million miles driven. 

The grim trend has continued this year. For the first five months of 2021, motor vehicle deaths increased 21% over the same period in 2020. 

At the same time, those in insurers’ supply chains and at many tier-two and -three carriers have reduced staff. Some fear that if reckless behaviors persist (and even if they don’t), claims will surge even after the country begins to return to normal. There is already evidence that an increase in claims has begun.

This could swamp insurers’ capacity to respond in a timely manner and ultimately increase premiums. Insurers can prepare for the future by taking a few measures, such as: 

Continuing to roll out straight-through processing (STP) for low-complexity claims

Carriers learned that the claims process can be simplified through an integrated partner ecosystem by providing the right digital tools for their insureds. This moves simpler claims through the process with little intervention, allowing adjusters to focus on the more costly, complex claims. By implementing true STP automation in key claim activities (e.g,, first notice of loss (FNOL), document management, customer communications, fraud and subrogation predictive analytics and payments) and across certain claim types, carriers can enhance the customer experience while increasing efficiency. That’s a big reason why adoption of STP is rising across all lines of business.

See also: Power of Partner Ecosystems

Using chatbots, texts and apps to facilitate a quick and frictionless claims experience for customers and service providers 

Customers have become more willing to engage digital tools during the claims process, which allows them to participate in creating their own claims experience. These solutions drive down cycle time, which is a primary driver in customer satisfaction. They also free employees so they can use their greatest assets — empathy and emotional intelligence – to enhance customer experiences. For example, Indian insurer Bajaj Allianz lets customers submit photos of vehicle damage via a mobile app. The insurer uses AI and machine vision to provide claim assessments within 20 minutes. If the customers agree, the funds transfer straight into their accounts.

Providing risk management advice such as storm alerts and hazardous road warnings to help customers avoid losses in the first place.

Insurers can channel this advice to customers via apps to encourage safe driving or to protect their insured property. They can even nudge customer behavior by rewarding them for being safe. As our recent paper, Insurance in the Age of Instinct, noted, insurance touchpoints will become fluid, varied and responsive and ultimately allow experiences and services to be tailored to the individual. Using data to assess risk in real time by predicting the likelihood of adverse events transforms insurance models from claims-paying activities to claims-prevention services.

Springboard for innovation

But why stop there? Now is the perfect time for insurers to consider even more transformational strategies, such as shifting from traditional actuarial underwriting models to pay-as-you-drive (PAYD) models. In 2020, most new vehicles sold in the U.S. could connect to the internet, compared with just 5% in 2016. The real-time data on driver behavior provided by telematics improves on legacy actuarial underwriting models by providing more accurate rating risks and taking the subjectivity out of underwriting a policy.

Insurers have taken notice. PAYD is gaining momentum – one tier-one carrier had six times more interest in its pay-per-mile program in 2020 versus 2019.

Other transformational strategies gaining momentum include parametric insurance, which is tied to indices like wind speed or precipitation, rather than losses sustained. 

The most forward-thinking insurers will adopt all these innovations, and more. But the most successful companies will be the ones that also reskill and upskill employees to master the new technologies and roles. Lifelong learning is a requirement in an industry that is becoming more dynamic by the day. A workforce that is adept at acquiring new skills is now a big competitive advantage. And remember, the more an insurer is known as a believer in lifelong learning, the easier it is to attract a new breed of talent to the industry.

See also: Innovation in Fraud-Detection Systems

As we continue to grapple with the pandemic, it’s important to recognize and adapt to the new normal. By adopting innovative technologies and new ways of working and learning, insurers will be ready for an increase in claims — but more importantly, will be prepared to capitalize on opportunities emerging in years to come.

Pandemic’s Lessons for Auto Insurers

It’s impossible to deny the profound impact that the pandemic has had on every person and every business, and the U.S. automotive insurance industry was no exception. Previously mundane errands such as a trip to the grocery store became a battle for survival — and toilet paper — and once-gridlocked highways were replaced with barren stretches of asphalt. 

On a more serious level, the global health crisis sent shockwaves of financial uncertainty across the nation that was also addressing considerable emergencies on both the civil and environmental fronts. 2020 quickly cemented itself as a year for the record books, and not for good reasons. 

However, as tough as COVID-19 has been, there are hidden lessons in connecting and analyzing what would otherwise have been viewed as dissociated events. And when compared with years past, the auto insurance industry can turn these pandemic-led transformations into actionable insights for the industry to evolve and adapt to meet future disruptive events. Our recent Auto Insurance Trends Report focused on analyzing the “new normal” of consumer behavior, which has a direct correlation to critical carrier-related factors such as underwriting, claims and those actively participating in telematics exchanges or usage-based insurance programs. 

Here’s what we found:

Empty Roadways Bring Out Lead-Footed Drivers 

When looking at the initial timeline of the pandemic, the sweeping stay-at-home mandates and shutdown orders across the country created a drop in miles driven of over 40% from March to April 2020. Even normalized mileage hovered between 83% and 88% of 2019 levels for the second half of the 2020 calendar year.

The empty roadways, particularly at the beginning of the pandemic, enticed many lead foot drivers, who took the opportunity to turn highways into personal drag strips. The first spike in elevated speeding rates occurred around mid-March of 2020 and remained 110% of 2019 data recordings for much of the remainder of the year. With those open roadways, drivers favored their accelerators over their brakes, resulting in a drop in hard braking instances during that same observed period. 

See also: How Insurtech Thrived in the Pandemic

Gen-Z Drives DUI Trends 

As part of our generational data insights, where we examined driving behavior across multiple age brackets, we discovered a particularly troublesome trend among our nation’s youngest drivers, Gen Z. 

Classified as ages 22 and under, Gen Z drivers ranked the highest when observing violation data across DUI infractions, overtaking those in the Traditionalist age group (ages 76-plus) who were the highest offender the year prior. While restaurant and bar closures led to a potential overall reduction in total figures, the months of April and May 2020 indicated an approximate 50% increase of DUIs among Gen Z drivers. 

Collisions and Claims Down, Severity on the Rise

When looking at the onset of the pandemic in 2020, much like the reduction in total miles driven, the volume of collisions and subsequent claims experienced considerable drops. With a 19% drop compared with 2019, one of the emerging trends throughout the entire year and particularly heightened in October was the inverse relationship between lowered claims figures and increased bodily injury. Comparing the months year-over-year, 2019 saw 7.1% growth in severity, while, in 2020, that figure rose to 12.7% despite the fewer miles driven. 

Naturally, the onset and continuation of a global pandemic will profoundly influence consumer behavior, including driving patterns, creating new challenges for the businesses that are so closely related to such behavior. However, from those challenges, pandemic-led transformations such as enhancing virtual claims capabilities have shown how the industry can adapt and improve. 

Adapting to Tackle Future Disruption 

While telematics has been around for years, 2020 and the pandemic brought a new sense of urgency to better understanding driving behavior. For insurance carriers, leveraging telematics and deploying usage-based insurance programs provides an incredible solution to accommodate changing driving behaviors. By way of stronger analytics and timely data reporting capabilities, telematics programs assist in taking the guesswork out of how to accurately calculate the risk propensity of an individual. 

As drivers continue to show interest in pay-per-mile programs as part of fluctuating driving patterns, telematics and usage-based insurance (UBI) programs give consenting consumers the opportunity to be priced more accurately than a traditional risk pool would dictate. This can increase customer satisfaction and allow an insurance carrier to be a competitive differentiator with a way to stay ahead of the curve of future disruptive events. 

The same can be said for almost all data or analysis during this strange but insight-full period of history. Understanding the motivations and connections between such events and human behavior will highlight both vulnerabilities and opportunities to grow. The pandemic will continue to affect virtually every market imaginable, not just now but for months and potentially years to come. The important aspect to consider is how to best adapt and evolve for the road ahead.

Auto Insurers Prep for Summer Driving

Traffic volume in the U.S. is often worse during the summer months, with sunny skies and warmer temperatures bringing people out of their homes and into their cars. This year, in particular, as pandemic restrictions ease across the country and Americans feel more comfortable traveling, we’re likely to see traffic volumes surge. In turn, this will mean increased potential for vehicle breakdowns and accidents. Auto insurers would be wise to prepare for a busier than normal season.

What will the surge look like?

While it can be difficult to pinpoint exactly how many vehicles will require assistance over the next few months, we have a few predictions:

  • We’re already seeing breakdown volume bounce back from 2020 lows, and it is likely volume will increase beyond 2019 pre-pandemic figures. 
  • Rather than growing in a spike that starts – and ends – quickly, summer volume will be consistently high beginning from late June through early September.  
  • Fourth of July will represent a significant peak.

See also: Key to Transformation for Auto Claims

How can insurers prepare?

In many cases, roadside breakdowns or accidents are a policyholder’s first – perhaps only – interaction with their insurer. These events therefore constitute a tremendous opportunity for insurers to please and impress their customers. Ensuring these events go as smoothly and efficiently as possible, particularly if a driver is frustrated, worried or nervous, is important. Managing these events can always be complex, and factoring in the scale at which these events will be handled in summer 2021 can make for some additional difficulties. The best way to be prepared is for insurers to optimize processes and systems now: 

1. Offer seamless, self-service communications: Consumers increasingly want easy-to-use digital options to engage service – think requesting a Lyft or ordering pizza on the Dominos app. This interest is extending into breakdowns, disablement and accidents, where help request channels like buttons within a branded mobile app, mobile web pages or web applications can deliver a fast, convenient experience for those who want it (trained agents can also be available via toll-free number or an “out” provided within the digital channel). These capabilities also open up agent time, allowing them to support more complex cases. Mobile web and web app options can be easily stood up so that digital options are ready to go by the time volume really starts to pick up.

2. Consider a digital-first accident management process: Accident management is typically an expensive process, but an early-response digital and cloud solution can improve efficiency and responsiveness. More importantly, digitization can enable insurers to remain nimble and agile, quickly and easily ramping up accident-related services and allowing them to focus more effort on other aspects of the business. When done right, digitization can save insurers millions of dollars in claims loss costs annually. An example would be an accident platform that can provide transparency to all authorized employees, allowing them to conduct self-service activities such as reporting, checking status, entering a new accident claim case, etc. The ability for agents to digitally request an accident tow, either a primary tow from the accident scene or a secondary tow from storage, will also greatly reduce reliance on oftentimes lengthy logistical calls with contact center agents. 

3. Leverage digital photo-enabled claims: The accumulated cost of vehicle storage fees, rental days and a secondary tow following an accident can add up to as much as $1,050. By using images of the vehicle captured at the scene of the accident, claims processers can identify damages earlier. This speeds the decision-making process on whether the disabled vehicle should be sent to a repair facility or a salvage yard, helping to avoiding costs. With the right tools, photos can be easily channeled into an insurer’s method of inspection for expedited appraisal. 

4. Streamline vehicle tow and storage release: If a vehicle involved in an accident is towed to a storage location, negotiating the release can require significant knowledge about local regulations, processes and market rates. As accident volume ramps up, insurers should consider augmentating their current platforms and workforce with a partner that can provide a dedicated team of agents – armed with robust data – that are experienced at identifying opportunities to negotiate and decrease vehicle storage fees. These agents should be able to manage every aspect of the release process, including reducing checkpoint and approval calls, conducting cost-trend analysis, handling payments directly with the storage yard and managing tow-out service. 

See also: Don’t Look Now, but Here Come Autonomous Trucks

A summer driving, breakdown and accident surge is right around the corner. Agero’s recent research shows that the way in which these disablement events are handled has a significant impact on policyholder loyalty. By taking steps now to update, optimize and digitize processes for maximum efficiency, insurers will be prepared to more effectively help their customers through this likely difficult time.

Nonstandard Auto Insurance’s Key Role

Now, more than at any time in history, customers, insurance carriers and their distribution need nonstandard auto protection for drivers.

Although, in the past, some carriers have declined to cover higher-risk drivers, that could change, partly as a result of economic turmoil caused by the COVID-19 pandemic. Early in 2020, both the consulting firm McKinsey & Co. and the reinsurance broker BMS Group predicted the United States could see a surge in the market for nonstandard auto insurance.

In July 2020, Allstate Corp. announced it would buy nonstandard auto insurer National General Holdings Corp. for about $4 billion in cash, a deal that is set to be completed early this year. With National General reporting about $5.6 billion in gross written premiums in 2019 (with nonstandard auto policies accounting for 44% of that), Allstate is scaling up its auto insurance business at a time when the coronavirus has crushed traffic on roads and reduced claims. In September 2020, State Farm, America’s largest property and casualty insurance provider, announced it would buy nonstandard insurance provider Gainsco for about $400 million in cash, another deal expected to be completed early this year. It’s State Farm’s first acquisition of another insurance company in its 98-year history.

So why is a renewed focus on this type of insurance is important? Well, let’s start with the most important part of the equation first: the customer.

The Customer

According to IBISWorld, the market size of the U.S. automobile insurance industry is estimated to be $311 billion in 2021. Estimates vary regarding the prevalence of nonstandard coverage; some experts say it makes up 20% of premiums for personal auto insurance, while others estimate it to be 30-40% of the auto insurance market.

Customers need nonstandard coverage availability and premiums to protect their families. One family member having driving issues (a DUI, multiple accidents, SR-22, being recently nonrenewed from a preferred policy and poor credit) shouldn’t knock out the entire family unit from getting the type of protection they need and from qualifying for a preferred policy/rate.

Today, the average household has multiple vehicles and multiple drivers. More than ever, people want a carrier and an advisor/firm to represent them on everything. They expect and demand a one-stop shop for all their insurance and financial needs. This includes, but is not limited to, providing protection even when the household account is not 100% a preferred risk.

See also: How to Engage Better on Auto Insurance

Now let’s look at how a focus on the nonstandard market can benefit carriers.

The Carrier

Until recently, most of the largest carriers focused on the “preferred market.” A few of the leading carriers have had affiliate companies/brands to provide a nonstandard solution for their customers. Other preferred carriers dabbled in or tried to provide a “near-standard“ option, only to get clobbered in many instances.

Progressive and Geico are examples of companies embracing the nonstandard market with expertise pricing and are models of how to provide customers with a protection solution that is sustainable. However, most carriers are currently looking at strategic alliances or are purchasing existing nonstandard carriers as partners. The bottom line is that the customer has spoken, and companies need to provide a one-stop shopping experience going forward. Not providing such a solution opens the door to the competition.

Finally, let’s look at how increasing the focus on nonstandard coverage can benefit distribution’s ability to provide unrivaled service.

Distribution

Whether advisors are employee-led or contractor-led, are brokers, firms, agents or team members, providing unrivaled service, advice and product solutions is the way forward. While there will always be an element of transactional sales, providing a meaningful and consistent customer experience is the winning strategy.

Most practitioners would not want to try to make a living on nonstandard auto only. But ignoring it altogether means a significant missed opportunity. The firm owners, brokers and agencies that have a laser focus on the economics business realize they must provide real solutions for all their clients, even in situations that are complex, difficult and risky.

Providing nonstandard service and solutions not only wins new business, it sustains relationships. And we all know great relationships lead to referrals and additional opportunities. Providing unrivaled service requires focus on factors other than just price. Offering nonstandard coverage when your competition does not is one way to leap ahead.

The nonstandard auto market has never been more important. It’s no longer a one-off. As our industry retools, nonstandard auto needs to be at the top of the list as we serve our customers.

Time to Start Over on Secondary Towing

Immediately following an accident, undrivable cars are typically towed away from the scene to temporary holding locations such as an impound lot or storage facility. There they remain until an insurance adjuster evaluates the vehicle and declares it a total loss or requests to have it towed to another facility to be repaired. This process could take several days, and, each day, storage costs are adding up. Moving the vehicle to a repair facility — whether a DRP (direct repair program) facility or somewhere else — is referred to as a “secondary tow,” and, as any claims adjuster in the auto insurance business will tell you, the secondary tow process is ugly. The current system is outdated, chaotic and excruciatingly inefficient. In fact, it’s so awful that the only reasonable solution is to rethink the secondary tow process altogether and start over from scratch. 

Let’s take a look at the process as it stands today. Following the accident, the claims adjuster often has no idea where the damaged vehicle is for several days. The tow was likely called for by local authorities on the scene, and the tow operator may bring it to any local lot. Sometimes, the carrier has to rely on the motorist to learn of the vehicle’s location.

Because there’s no standard procedure once the location is identified, the adjuster must determine how to get the vehicle released. Every lot is different, and, with adjusters working hundreds of simultaneous claims, it takes quite a bit of time to determine what signatures are required, what information is needed for forms, how to transfer money and so on for each one. Each claim requires a lot of phone calls and extensive paperwork to resolve.

The adjuster then has to order a tow to transport the vehicle to a repair facility or a salvage location, if it’s totaled. By and large, tow providers don’t like doing secondary tows, so finding a willing provider may take some time, and, even then, the provider is not likely to prioritize the job, which will cause additional delays. 

Tow Operators — Caught in the Middle

It’s hard to blame tow providers for their reluctance to perform secondary tows. They often find themselves completing a lot of paperwork and have to pay for fees out of pocket. Reimbursement for the fees and payment for the job can take 30 days or more, and, even worse, the provider often doesn’t know how much the network will pay until the check arrives.

Typically, it takes about three days to get a vehicle released from a tow yard, and, throughout the entire process, the adjuster has zero visibility into the status of the vehicle. Most of the time, an adjuster will only know where a vehicle is when the repair facility notifies the adjuster that they’ve received it. All the while, the insurer is racking up storage fees and rental car costs. If the motorist calls for an update on the claim and the vehicle, the insurer has no information to provide.

Requirements for a New Secondary Tow Process

The industry needs a new, transparent system for secondary tows, because the current one benefits no one, including the impound facilities. After all, they want to move vehicles through their lot and get paid for storage services. The longer that vehicles remain in the lot, on average, the harder it is to identify vehicles that will never be picked up, which is a poor return for the business. Certainly, the impound facility can send abandoned vehicles for salvage, but the facility rarely recoups costs.

Here’s what a new, more efficient and transparent secondary tow process needs to do:

  • Ensure tow providers are paid fairly and quickly for the secondary tow: If tow providers know they’ll be paid a reasonable rate within 24 hours after the job is done, they’ll take these jobs and complete them quickly. 
  • Provide adjusters the transparency they need: Adjusters need regular updates on the status of the vehicle to optimize their workflow and to provide the vehicle owner with updates. Receiving real-time updates from an online dashboard is preferred.
  • Create a more standardized process for vehicle release: This is a longer-term goal, as this industry is highly fragmented, with many “mom and pop” operations. Nevertheless, the industry needs to organize around some standard procedures for vehicle release to speed the process and reduce confusion. Yard owners will get paid faster if adjusters know in advance the information required and the basic outline of the process they’ll need to follow. And motorists will get their vehicles back faster if it takes less time to release it from the yard and transport it to a repair facility. Everyone benefits.

See also: Transforming Auto Claims Appraisals

Much of this new process can be accomplished through digital technologies. By automating the process of authorizing and paying for a vehicle’s release, tow operators can focus on the task they do best: transporting vehicles. Mobile technologies can make it simple for tow operators to keep adjusters informed, often without having to do anything beyond their regular transport tasks. Systems exist today that can send alerts when the tow operator picks up and drops off the vehicle. GPS can even track the vehicle as it’s towed to the repair yard.

Secondary towing is broken, but it can be fixed. With the application of new technologies and the will for all the players to benefit together, it is possible for the industry to build a secondary tow process that works for insurers, tow companies, yard owners and motorists alike.