What will 2024 hold for auto insurers?

Growing repair and replacement costs and labor challenges hampered auto insurers’ results in 2023. Will 2024 bring more of the same?

As we head into 2024, the motor vehicle insurance landscape will continue to evolve under inflation pressures, labor shortages, and escalating vehicle and repair costs. These economic factors, which continue to send ripples throughout the industry, are directly impacting policyholder’s premiums. They are also forcing insurers to adjust their pricing models to accommodate increased costs associated with vehicle repair and parts replacement.

According to the Association of British Insurers (ABI), vehicle repair costs have risen by 33% yearly, the highest figure since ABI started collecting this data in 2013.

Advanced technologies in new car models, while providing superior performance and safety, have also driven up the cost of parts and labor. As a result, even minor accidents can lead to hefty repair bills, causing insurance companies to reassess their risk calculations and premium structures.

This surge in premiums has made vehicle insurance a significantly larger financial obligation for the average consumer globally:

In the U.K., the average premium paid for private comprehensive vehicle insurance was £511 ($649) in Q2 2023, a whopping 21% higher than one year ago.
Insurance rates across the U.S. are expected to increase 4% in 2023, bringing the total average premium for full coverage to $1780 per year.
Premiums in Mexico were up 17.8% in the first half of 2023 for auto lines.

Amid these challenges, the industry is seeking innovative ways to balance the scales and ensure insurance remains accessible and affordable. Insurers are increasingly leveraging technology to enhance risk assessment, streamline claims processing, and improve customer service — all in an effort to offset inflationary pressures and the increasing costs of parts. While challenging, this transition could mark a new era in vehicle insurance, one that merges technology and insurance and delivers better value to the consumer.

The following are a ffew key trends we can expect in the motor vehicle insurance industry in the coming year.

Accelerating claims becomes a top priority

According to J.D. Power’s 2023 report, U.S. customers said their average auto repair cycle time has doubled over the past two years — now exceeding 23 days. In the UK, workshop wait times have increased by 57% since before the pandemic, according to fleet specialist Epyx. The company said average lead times for service, maintenance and repair rose from 8.11 days in January 2020 to 12.76 days in September 2023.

Across the industry, the conventional claims process is still far too time-consuming. In the coming year, we can expect more efforts to improve antiquated claims processes to continue, led by the use of artificial intelligence (AI) and computer vision technologies, which can help accelerate assessments and settlements.

AI-powered visual intelligence technology can help insurers make sense of visual data and evidence the same way a human claims adjuster would. It can be used to gather evidence at the scene of an incident, analyze that evidence and potentially resolve a claim within minutes of first notice of loss. Moving forward, we can expect to see more insurers make use of this technology as a way to guide the policyholder through a remote but comprehensive evidence-gathering process that can then be used to determine a pre-repair cost estimation — all without the need to take the vehicle to a body shop for inspection.

Once evidence is gathered remotely, insurers can automatically check it against a database of previously collected evidence to identify any unusual cases and flag them for intervention by a human agent. Not only can this help accelerate the claims process but it also minimizes the potential of fraudulent cases.

Powering forward with personalized insurance products

Looking ahead to 2024, we can anticipate tailored insurance products — i.e., those that are specifically designed for individual driver and vehicle needs and preferences — to become the golden standard. According to Accenture, 62% of Gen Zers said they were more likely to buy insurance from a company that offers personalized services and prices.

The advantage of personalized insurance offerings lies in the ability to provide customers with coverage that aligns precisely with their unique circumstances. By using advanced analytics and data such as age, geographic location, and other relevant details about the driver and vehicle, insurers can craft policies that offer the perfect blend of protection and affordability.

This level of personalization not only helps enhance customer satisfaction, but also enables insurers to stand out in an increasingly competitive market. Understanding and addressing the specific needs of each individual driver will allow more insurance providers to establish themselves as trusted partners, offering peace of mind and reassurance.

Shifting towards the digital-first customer experience

Despite the rise in digital customer service options, one-third of claimants said they still needed to call their insurer following a digital update. From effortlessly purchasing policies to conveniently filing claims, the demand for a seamless digital insurance experience has never been higher.

Insurance companies will need to prioritize the customer experience in 2024 to keep up with the growing demand for quality digital-first services. The good news is that most insurers have already taken steps to improve their digital platforms, providing more intuitive mobile applications and self-service options that empower customers to take control of their insurance needs.

The trend towards engaging with customers wherever and whenever they prefer helps to ensure that policyholders feel connected and supported at all times. It can also enhance accessibility overall, making auto insurance services more readily available to a wider range of individuals and demographics.

Overcoming resistance to digital transformation

While advances in AI hold exciting possibilities for the insurance industry, more challenges are certain to emerge. Many insurers have already embraced some AI-driven technologies, however, there is still some resistance to digital transformation that the industry must overcome.

The best way insurers can navigate any digital transformation challenges is by gradually introducing automation, striking the right balance between technology and human touch, and automating specific processes while maintaining personalized customer interactions.

According to an SAI Partners report on claims management trends for 2023-2024, AI-driven automation can enable a 30% -50% reduction in customer service costs. It is also becoming increasingly possible for insurers to embrace automation without compromising the customer experience.

There is still so much untapped potential for innovation in insurance processes to improve and meet the evolving needs of the motor vehicle industry. With the new year around the corner, we can expect to see several noteworthy leaps, including more acceleration of claims processing with AI, more customized insurance offerings, and enhanced customer experiences with digitalization. Although these changes may pose new challenges for some insurers, they will also unlock exciting new opportunities for those that embrace them.

Julio Pernía Aznar is CEO of Bdeo, a technology company that provides visual intelligence for the insurance and fleet industries. A fast-growing insurtech AI startup with proprietary “visual intelligence” technology, Bdeo has increased its international presence by 30% over the past year and now boasts offices in Europe, Latin America, and Africa.

Specific Technologies Driving Insurtech Investment in 2024

Understanding the Funding Decline The decrease in funding does not necessarily spell trouble for the insurance sector but instead highlights a strategic shift, the report suggests. “The insurance industry, like many sectors, is focusing on the most promising ventures with substantial insurance potential,” the report explains. “Insurers are directing their investments toward key areas and current trends such as embedded insurance, employee benefits, and cyber risk management. This strategic investment approach signals a forward-looking mindset within the industry.” Three Key Insurtech Trends for 2024 The report identifies three major trends shaping insurtech investments in 2024: Public Insurtech Companies: Financial and Growth Strategies The report also notes that public insurtech companies are prioritizing revenue growth as their main goal. These firms are restructuring their financial strategies to boost cash flow and capitalize on rising revenue streams. Their growth prospects are supported by expanding asset portfolios and strong market demand. “Public insurtech companies are focusing on revenue growth and optimizing their financial frameworks to increase cash flow,” the report states. “The growth potential for these companies is driven by increasing revenue opportunities, broadening asset bases, and a robust market for their services.” In summary, while global insurtech funding saw a decline in 2023, the industry’s focus on GenAI, digital process management, and connected insurance technologies is setting the stage for a dynamic and forward-looking 2024.

Business

Insurer Secures Unanimous Supreme Court Victory in New York Choice of Law Dispute

In the world of sports, a clean sweep, a shutout, or a perfect game is the ultimate achievement. In the legal arena, a unanimous decision from the U.S. Supreme Court is equally rare and significant. In a notable legal triumph, Great Lakes Insurance SE achieved a unanimous 9-0 victory in the Supreme Court on February 21, 2024. This victory follows a protracted legal battle that began in the District Court of Pennsylvania, advanced to the U.S. Court of Appeals for the Third Circuit, and culminated in the Supreme Court’s decisive ruling. Background of the Case: Great Lakes Insurance SE v. Raiders Retreat Realty Company The heart of the dispute was the insurance contract’s clause selecting New York law to govern any future legal conflicts. Although the financial implications of this case were relatively minor compared to the broader marine insurance industry, the insurer’s determination to uphold a crucial maritime legal principle has significant long-term implications for marine insurance. Faced with the insured’s counterclaims—including allegations of breach of fiduciary duty, insurance bad faith, and violations of Pennsylvania’s Unfair Trade Practices Law—the insurer was confronted with serious risks. Such claims could lead to the shifting of attorney’s fees, treble damages, and more, which might normally encourage insurers to settle rather than risk pursuing justice. However, Great Lakes Insurance, supported by The Goldman Maritime Law Group, opted to challenge the Third Circuit’s decision and seek clarity from the Supreme Court. Supreme Court Ruling: A Landmark Decision In a landmark ruling, Justice Brett Kavanaugh affirmed that choice of law provisions in maritime contracts should be upheld by default. This ruling is a major victory for establishing a consistent federal standard in maritime law and avoiding a patchwork of state laws that could complicate marine insurance disputes. The Supreme Court’s decision overturned the Third Circuit’s earlier judgment, which had questioned whether Pennsylvania’s public policy concerns might override the insurance contract’s choice of New York law. By upholding the New York choice of law clause, the Supreme Court eliminated the extra-contractual bad faith claims under Pennsylvania law, thereby ensuring that the dispute could be resolved based on the merits of the insurance claim itself. Significance of the Supreme Court’s Decision This ruling represents a significant advancement in maritime law, affirming that choice of law clauses in maritime contracts are generally enforceable. The decision establishes a clear, uniform legal framework for resolving maritime contract disputes, which will streamline the process and ensure fair adjudication of future insurance claims. Justice Clarence Thomas’s concurring opinion was particularly notable for its criticism of the 1955 Wilburn Boat v. Fireman’s Fund Insurance decision, which had previously influenced maritime insurance law. Thomas argued that Wilburn Boat was incorrectly decided and stressed that a uniform and enforceable set of rules is essential for the development of maritime law. Impact on the Marine Insurance Industry The Supreme Court’s decision sets a “bright-line” rule affirming that choice of law clauses are valid unless there is a strong argument against the selected jurisdiction. By endorsing New York’s insurance laws as a reasonable choice, the ruling supports a more consistent and predictable legal environment for marine insurers. This decision represents a major step forward in maritime law, helping insurers better assess risks, determine premiums, and ensure fair and efficient resolution of maritime insurance disputes.

What will 2024 hold for auto insurers?