Growing storm intensity, EV insurance top 2022’s P&C reporting

Hurricanes, floods, twisters, and other natural disasters seemed to dominate property and casualty news in 2022 in what was actually a moderately damaging year compared to previous ones. Still, the intensity of storms and the nation’s relative preparedness, was high on the industry’s collective mind. But it was auto insurance that generally brought more interest from readers. With rising premiums, technological innovations, electric car controversies and other changes, the auto is still king in the U.S.

Coverage, risks of all-electric vehicles examined

As 2022 saw state and federal authorities move to prohibit sales of internal combustion vehicles and encourage adoption of all-electric autos, insurers examined how coverage options and liability claims may change with the advent of more gas-free cars and trucks.

With California announcing it will transition to all electric-powered vehicles by 2035, about 17 other states are set to follow suit, and there are bound to be changes in insurance as the number of EVs expand.

Auto insurance policies for electric vehicles aren’t all that different from those covering gas guzzlers -- for now. But that will change, analysts said, as the unique characteristics of high-tech battery-powered autos will mean new options for coverage.

Florida moves to bolster falling reinsurance market

In anticipation of another dangerous hurricane season, Florida legislators in June approved $2 billion in tax dollars to provide additional reinsurance to property insurers that otherwise might not be available on the private market. Though critics dubbed to little too late as a handful of P&C insurers collapsed or abandoned the state, leaving a void of reinsurance coverage.

Regardless of whether the legislation was effective, it probably was a wise move as the state and region was walloped by two hurricanes, Ian and Fiona, along with 13 other weather and climate disasters in the US wreaked billions of dollars of damages. The storms ended what was a string of relatively mild hurricane seasons in Florida, but ones that nevertheless inspired or caused insurers to flee.

“We've never seen anything like it. It is extreme volatility right now,” said Mark Friedlander, director of corporate communications at the Insurance Information Institute. “We don't see any slowing down of that trend. Unfortunately, this is bad news for homeowners, and it is bad news for insurers. There are no winners, there are all losers here.”

The end of policy 'bundling?'

The days of home and auto-insurance bundle, once a mainstay of property and casualty insurance, customer retention, and lifetime value strategies, may be numbered. A new J.D. Power study identified a trend of legions of customers breaking up their polices, rapidly rising auto-insurance premiums are largely to blame for potential defection among bundlers, the study said.
Weakening the bundle has several effects. For example, when savings to the consumer in the bundle are diminished or negated by price increases in one or more products, the consumer naturally considers options for better savings.

Nearly one-third (31%) of bundlers said they “definitely will” switch their home insurer if they switch their auto insurer after an insurer-initiated, auto-premium increase.

Send in the drones

Who said insurance is boring? Travelers Insurance said it employs 700 professional drone operators for claims processing.

Gone are the ladders, measuring tape, Polaroid cameras, and other arcane tools of past claims adjusters. With drones, professionals like can measure, assess, and report, roof damage, gutter and chimney wear and tear, and a host of other property claims issues without ever leaving terra firma.

“It's a tool that we have in our capacity, where if it's going to help us from an efficiency standpoint, or a safety standpoint, we want [policy holders] to consider it as their first option that gives them a good glance at what's going on with the property,” a Travelers executive said.

Travelers has a proprietary geospatial tool to accompany its drone strategy, that maps almost the entire country with high-resolution photos used to compare with photos taken after a catastrophe such as a hurricane, tornado or wildfire.

Telematics may alleviate selection dilemma for auto insurance

Fred Dimesa, head of advertising and aggregated data product segment with Arity, said what insurers don’t know about their customers can hurt them. He said traditional customer targeting methods often fail to gather in-depth understanding of prospects, making it easy to mistakenly target high-risk drivers. These drivers typically have a low lifetime value, increasing customer churn which can negatively impact profitability over time.

With telematics data, though, insurers can get out of this targeting rut, he said, and learn how to gain a true understanding of prospects to target, engage and convert quality leads

Consumers who frequently shop for new coverage are usually drivers whose rates have increased because they had an accident or experienced another form of loss, Dimesa said. Data show that these high-risk drivers click on car insurance ads up to 3 times more often than low-risk drivers. These risky drivers are not who auto insurers want in their book of business — but they may still be inadvertently targeting them.

By using programmatic marketing techniques such as audience targeting, auto insurance marketers can target segments of drivers grouped by driving risk in their ad campaigns across the digital ecosystem.

And by using telematics data in their programmatic marketing, carriers can either target only the most profitable customers, or simply modify their bidding strategy to bid higher for the best customers and bid lower for the higher-risk customers.

Rising tides won’t lift this boat

A new report predicted an alarming rise in sea level between 2022 and 2050, bringing with it a greater threat of flooding and related property damage.

The interagency report, led by the National Oceanic and Atmospheric Administration, forecast that U.S. sea levels will rise at the same rate in the next 30 years as they did in the previous 100 years, sparking fears of more frequent high-tide flooding, extreme storm surges and saltwater infiltrating coastal infrastructure.

The NOAA report said scientists are confident U.S. coasts will see between 10 and 12 inches of sea level rise by 2050.

Insurers see no letup in catastrophic storms, claims

In early 2022, property and casualty insurers rightfully braced for another year of record losses from catastrophic hurricanes, tornadoes, wildfires, flooding, and other natural disasters.

Extreme events, in fact, are no longer rare, officials said, leaving insurers to ponder whether the losses can ever be stemmed or if the government can provide greater protection in both bracing for catastrophes and contributing financially.

“I’ve been in the business over 30 years and we’ve always had big catastrophes,” said Steve Clarke, vice president, Government Relations for Verisk Analytics Inc., a multinational data analytics and risk assessment firm based in Jersey City, New Jersey. “But there's been a shift in extreme events, most notably in the last decade. Losses have increased dramatically. Once the exception, the billion-dollar catastrophe appears to be becoming more the norm.”

Can’t get no satisfaction from auto insurers

J.D. Power also said rising auto insurance rates lowered driver satisfaction with price, leading to a surge in consumers shopping for new policies while dragging down consumer satisfaction, a perfect storm of record-high replacement costs, increased frequency and severity of collisions and an economic outlook that suggests this situation won’t change anytime soon is forcing a major industry disruption,” J.D. Power officials said.

The falling satisfaction rates might lead to significant adoption of usage-based insurance, which may be the only way insurers can navigate the financial realities while still managing to engage with customers and build loyalty by meeting their specific needs.

Usage-based auto insurance tracks the number of miles driven, speeding, exhibiting road rage while driving, and harsh braking. The car insurance premium is then adjusted based on these and other driving behaviors.

Auto insurance shopping drops during pandemic

Auto insurance shopping was down 3% overall in 2022 compared to the previous year, apparently the result of a big decrease by higher-risk consumers, where shopping was down 22% compared to the second quarter of 2021.

The shopping behavior surprised industry executives who laid some blame on the effect of supply chain disruptions and a lack of new vehicle inventory.

“The lack of new vehicle purchases suppressed overall auto insurance shopping,” said Michelle Jackson, senior director of personal property and casualty insurance, in TransUnion’s insurance business. “Even with the influx of consumers shopping their auto insurance as premiums increase from industry-wide rate increases, this cannot overcome the suppressed shopping rates we are seeing from consumers not purchasing new cars, thus creating a shopping event.”

Inflation hits auto insurers, too

A new paper from The American Property Casualty Insurance Association’s latest paper demonstrated how inflation in auto insurance claims outpaced the underlying consumer price index at a rate much faster than increases in premiums.

Some key points from the paper included:

•  Increasing costs of litigation and medical expenses continue to impact auto insurance losses.
•  Increasing injury claim severity is offsetting reduced frequency.
• There is a continuing rise in auto repair, car rental, and vehicle replacement costs
• The increasing frequency of vehicle damage claims multiplies the repair cost inflation.

The research showed the impact inflation is having on loss ratios, which climbed to its second highest level in more than 20 years, reaching 78.4 percent for the second quarter of 2022. Meanwhile there continues to be a deterioration in driving behaviors.

High tech battery-powered cars bring new and different coverage options.
As state and federal authorities moved to prohibit sales of internal combustion vehicles and encourage adoption of all-electric autos, insurers continued to examine how coverage options and liability claims may change with the advent of more gas-free cars and trucks.

For now, auto insurance policies for electric vehicles aren’t all that different from those covering gas guzzlers. But that will change, analysts said, as the unique characteristics of high-tech battery-powered autos will mean new options for coverage. At its base, electric vehicles are more expensive and repair costs are higher than for gas-powered ones, which may automatically mean higher insurance costs.

“Because the vehicles are more costly, the rates of insurance are on average, between 13% and 15% higher than for standard vehicles,” officials said.

Doug Bailey is a journalist and freelance writer who lives outside of Boston. He can be reached at [email protected].

© Entire contents copyright 2023 by InsuranceNewsNet.com Inc. All rights reserved. No part of this article may be reprinted without the expressed written consent from InsuranceNewsNet.com.

Doug Bailey is a journalist and freelance writer who lives outside of Boston. He can be reached at [email protected].