There’s been quite a change in driving trends over the past few years. Between shifts due to COVID and, of course, inflation and rising gas prices, many drivers are considering big changes to their driving habits. How your coverage stacks up may change the way you insure your vehicle as well.  As the pandemic gained strength in 2020, the U.S. saw an unprecedented drop off in driving, and not surprisingly, claims. With less drivers on the road, there were fewer collisions and roadside incidents — benefiting drivers as well as carriers. Even with some of the premium relief provided back to customers during the year, 2020 ended up being one of the best years on record for profitability of the personal auto insurance industry.  While carriers benefited from many of the same trends in the first half of 2021, the remainder of the year was characterized by a rapid shift in the external environment that has left most carriers still struggling to achieve profitability in the personal auto line. Though it does vary by geography, loss ratios have been deteriorating significantly as price increases for used cars, repair parts, and skilled labor from inflation and supply chain issues/worker shortages along with higher speed collisions have caused a spike in claims severity. Simultaneously, accident frequency is rising as miles driven rebounds closer to pre-pandemic levels, though driving patterns may never fully return to “normal” given the surge in remote work that is likely to become permanent. 

According to a recent AAA survey, gas prices have reached the point where nearly 60% of drivers are considering changes to their driving habits, and this could result in a fall in accident frequency as they drive less often, drive shorter distances, and even combine trips.   

While the price per gallon certainly varies by geography, drivers in lower income areas might be disproportionately impacted since they are generally more sensitive to changes in the price of fuel.  

Fewer accidents isn’t just critical for your own budget — but it is good for insurers, too. And what keeps their costs low can often help your own budget out as well. 

The direct incurred loss ratio of the personal auto physical damage line surged to 71.5% in 2021 from 54.9% in 2020, according to NAIC data sourced from S&P Global Market Intelligence. That was the highest result for the business line in at least 25 years, surpassing the previous high of 69.5% in 1996. Each quarter sequentially worsened throughout 2021 before leveling off in the last quarter of the year (and the first in 2022), evaporating the industry’s underwriting profit and turning it into a loss.  

Carriers have been responding to these adverse trends in several ways, with the primary lever to pull being to raise rates, though it may be up to 6 or even 12 months to fully take effect depending on the length of the customer’s policy. More immediate actions include tightening underwriting criteria and reducing marketing spend.  

Improving the cost structure is usually a longer-term initiative, but several insurtechs have even been forced to make drastic reductions in headcount, though those decisions may have been several years in the making and the external environment finally forced their hands. While many Americans are feeling pain at the pump as a result of skyrocketing gas prices, it may also alleviate some of the pressure for insurers, if it changes driving habits. 

In 2020, when loss costs were lower for insurers, drivers reaped the benefit as well. Keeping costs low across the board helps us all. But as a driver, you need to be aware of the marketplace. 

The last time the personal auto industry saw a spike in loss costs was in the 2015-2016 timeframe, and carriers responded similarly to how they are currently — mainly by raising rates.  

The result was a significant increase in the amount of insurance shopping and a window of opportunity for carriers to pick up customers, including more preferred ones who weren’t usually frequent shoppers. A similar pattern is emerging in 2022, and some are even going so far as to call it “The Big Switch.”  

Some insurers possess especially strong data and analytics that enabled them to preemptively begin raising rates as industry trends were becoming more adverse — as to not rate-shock customers later. Those that took early action, and also have superior pricing sophistication to more accurately match rate to risk, will be best positioned to grow with the increasing surge in shopping. Additionally, these insurers may benefit from ramping up advertising spend given the increased efficiency that could come in an environment of rising frustration among customers who are searching for a better price and having difficulty finding one. 

Many consumers are turning to alternatives like telematics-based policies to give them more control over the cost of their premiums as their budgets are pressured by inflation. These types of policies are more personalized for how people drive and can result in significant savings for safer drivers. And they come with other benefits, such as vehicle location tracking and driving analytics to help individuals become better drivers and lower their costs even more.   

Choose the insurance that will give you the best insurance for rates that make sense for you. Choose Novo Insurance. 

Empowered drivers are safer drivers, more thoughtful drivers, and more engaged drivers. Learn more about Novo with articles on our blog, such as: 

• Introducing Novo   

• Auto Insurance: Transformation or Disruption   

Or check out helpful safety tips, such as:   

• 6 Ways to Defend Yourself Against Drunk Drivers   

• Car Fires: Can it Happen to You? 

What are you waiting for? Join the ride and get a free quote today to see how techno-driven coverage can lower your premiums.