In 2016, the average direct combined loss ratio among the nation’s ten largest insurance companies ballooned from 99.7 percent (in 2010) to 107.1 percent. In simple words, these major insurers were losing 7 percent more than they earned last year! In pursuit of a short-term solution, insurers have been relying on price hikes, hoping to break the seemingly perpetual trend of losses. In fact, the consumer price index (CPI) for insurance has remained at 21.5 percent for the last five years, compared to the overall CPI of 4.5 percent, portraying a steep increase in premium prices. Despite the price increases, the trend of losses doesn’t appear to be getting any better — with an estimated $154 billion in net incurred losses this year, the industry’s statutory combined ratio will reach 108!
As more drivers are travelling more miles and the penetration and use of smartphones is increasing, distracted driving is growing exponentially. To put things in context, 11 teens die every day due to distracted driving. According to NHTSA, 3,477 people lost their lives and 391,000 were injured by distracted driving in 2015. With an estimated 660,000 drivers using cellphones while driving during the daylight hours, a dramatic increase in loss of property, health and life seems inevitable.
It goes without saying that distracted driving not only adds to the frequency of claims, but aggravates claims severity. Early adopters of smartphone based (BBI) programs have reaped benefits; however, some insurers have been hesitant to adopt BBI programs due to concerns around customer adoption, user satisfaction and ease of implementation.
To get to the bottom of this, CMT commissioned a survey of 718 drivers. Survey results indicate that only 20 percent of policyholders have full clarity on how their policy rates are determined. Moreover, 73 percent of drivers want their premium prices to be based on how safely they drive. These responses are in line with Berg Insight’s prediction that by 2020, there will be 42.1 million insurance telematics policies in force in the U.S.
One especially interesting finding is that price does not seem to be the only factor shaping policyholders’ buying decisions. The survey results show that 25 percent of millennials, who make up nearly 30 percent of all U.S. drivers, are interested in using a BBI program to improve their driving behavior and monitor and compete with friends and family for safe driving scores.
This leads to the question: How can auto insurers respond to these changes in customer preferences? Our market survey report discusses how combining newer technologies rooted in mobile telematics, machine learning and behavior modeling — with traditional factors like the credit score — leads to more accurate risk pricing. With this combination of factors, insurers can better capture and retain customers by incentivizing younger, safer drivers, while more accurately classifying riskier drivers through better risk stratification.
To learn more about evolving policyholder preferences, risk pricing, customer segmentation and policyholder adoption, download the full 2017 Cambridge Mobile Telematics market report: Consumer demand for behavior-based telematics could save auto insurers from mounting losses.