Four Auto Insurance Trends Creating Opportunities and Obstacles

4 Key Trends in Auto Insurance

1. Consumers will increasingly shop around for auto insurance due to higher rates.
2. Digital customer interactions enhanced by AI will continue to advance.
3. Electric vehicles are the future but concerns and challenges exist.
4. ESG considerations will grow over time.

The way insurers interact with their customers has significantly evolved, partially driven by the pandemic. Additionally, emerging technologies bring efficiency and cost savings to all parties. At Ipsos’ Customer Experience practice, we work closely with the insurance industry and actively monitor industry trends as they emerge and evolve. These four developing trends will shape the auto insurance industry for years to come, with implications for measuring, modeling and managing the auto insurance customer experience. 

Consumers will increasingly shop around for auto insurance due to higher rates

• The cost of insurance has increased markedly over the last 12 years – a nearly 30% increase since 2011, according to an analysis by insurance comparison service The Zebra.
  • The estimated average cost of full coverage car insurance for 2023 was $1,780 per year, with ever-popular SUVs costing more at $2,472 per year, according to consumer research service ValuePenguin.
  • With an estimated average cost increase of 8.4% in 2023, 12% of consumers planned on looking for a new auto insurance provider, ValuePenguin reported.
• Some of the observed rate increases are due to an increase in poor driving habits and accidents, particularly since the onset of the pandemic:
  • The LexisNexis' 2023 U.S. Auto Insurance Trends Report found that major speeding violations were up 20% in 2022 vs. 2019.
  • Industry experts at AM Best point to “changing driving habits,” speeding, drunk driving and driving without seatbelts as the main culprits in rising auto losses and more costly claims.
• Several auto insurance studies have pointed to reduced customer loyalty in the face of steadily declining customer satisfaction. Combined with increasing frustration due to rising rates, we’ve observed a surge in value-shopping as consumers look elsewhere.

CX Implications:

• In the face of rate increases due to both inflation and worsening driving habits, insurers will need to better communicate the reasoning behind rate increases to their policyholders.
• Additionally, the pressure is on auto insurers to improve tools, processes, and service levels to offset the “pain” of price increases and differentiate themselves in a competitive marketplace.

CX Considerations:

• Accurately measuring customer satisfaction during 2024 will be critical. Does your current CX measurement system capture the nuance behind rate satisfaction levels? Can you identify how you are differentiating vs. your competitors beyond rates?

Digital customer interactions enhanced by AI will continue to advance

Consumers benefit from Telematics and Usage-Based Insurance.

• Telematics-supported Usage-Based Insurance (UBI) programs enable safer drivers to take advantage of insurance discounts.
  • UBI programs make roads safer by helping customers understand safe driving habits, while giving them more control and transparency over rates.
• Insider Intelligence estimates that 41.2 million U.S. drivers are enrolled in UBI, in the form of both pay-as-you-drive and pay-how-you-drive programs. Growth in UBI in 2023 was estimated at 15.5%.

AI will enhance the consumer experience.

When thoughtfully applied and thoroughly tested, AI promises:

• Instant responses to routine questions and interactions via more intelligent, generative AI-powered chatbots
• Tailored insurance products to specific customer needs, helping insurers to offer more personalized coverage and pricing, potentially increasing customer loyalty, while also identifying the right moment for product cross-sell
• Advanced digital claims. With smartphones in hand, many policyholders are now willing to electronically submit their photos of car damage, avoiding a claims adjuster entirely and creating a “touchless” experience. Visual AI tools can assess the damage and estimate the claim based what it knows about the car, the type of damage and current repair costs. Even where a claims adjuster is involved, the role becomes one of review/validation, thereby expediting claims issuance and reducing the hassle of waiting for the consumer.

Even with these gains, consumers remain uneasy when it comes to the use of AI.

The April 2023 Ipsos Consumer Tracker surveyed 1,120 consumers and found that a majority of people are worried about several aspects of AI (https://www.ipsos.com/en-us/we-are-worried-about-irresponsible-uses-ai):

• AI tools will discriminate or show bias (57%) or even cause harm (65%)
• AI outputs won’t be clear or easy to understand (60%)
• We won’t be able to tell what is AI or produced by humans (71%)
• We will have more misinformation spread online (70%)
• Privacy concerns like having our data shared (72%)
• And in terms of customer service, being able to reach a human when we want to (72%)

However, AI and other digital interactions must not add to an already increasing rate of driver distraction.

• The National Highway Traffic Safety Administration reported a steadily increasing rate of drivers “manipulating hand-held devices” since 2018.
• Automakers inadvertently contributed to driver distraction via complex driver information and entertainment systems that cause drivers to take their eyes off the road. BMW Group Head Oliver Zipse says “Driver distraction is the main source of accidents – it's not fast driving. People are not looking at the road when driving, distracted by smartphones or in-vehicle screens.”

CX Implications:

• Digitization, visualization, and greater use of AI present the means to deliver a better customer experience, deepen customer engagement and potentially mitigate the pain of increased rates (or even reduce them in the case of UBI).
• However, the use of digital channels and tools has expanded across all consumer sectors, increasing the pressure to get it right when deploying new technologies.
• There is an increased role for education in the sector, from rate shopping and quote through the claims experience, so that customers trust that tools intended to improve speed and accuracy will do so without inserting bias or uncertainty.

CX Considerations:

• Measuring and tracking the impact of AI on the digital experience will be essential as AI customer service applications become more prevalent. Does your current CX measurement system include satisfaction with digital and AI-driven options, as well as their importance relative to other touchpoints consumers have with your brand?
• When launching new or enhanced digital solutions, do you have a comprehensive plan for testing the effectiveness, usability and customer satisfaction before rolling it out? While routine updates to AI-powered chatbots may seem business-as-usual, the introduction of GenAI necessitates extensive product testing.
• From a safety perspective, is the latest digital solution adding to vehicle complexity to such an extent that drivers are more likely to be distracted? This too, must be assessed via customer testing and feedback.

Electric vehicles are the future, but concerns and challenges exist

• The share of new electric vehicle sales in the U.S. is expected to grow to over 2.5 million cars by the end of 2027, according to research by AutoPacific.
  • However, consumers have both concerns and expectations regarding EVs.
    • A 2023 Ipsos survey of 2,000 car buyers found that affordability was the #1 buying concern overall at 37% and 81% want EVs with a low total cost of ownership.
    • Nonetheless, 71% of prospective buyers want EVs to “include all the latest high-tech features that are available.”
    • Although there are several concerns around the battery (59% of people surveyed were concerned about battery life, 51% about charging time, 45% about replacement cost), there are also worries around cost of ownership (31%), servicing (26%) and reliability (25%).
    • These concerns come despite the fact that EVs have fewer parts and a lower overall cost of ownership – $2,700 less on average, as estimated by AAA in 2023.
• EVs can present insurers with more challenging pricing models. Why?
  • EVs are designed differently, and thus the impact of collisions varies from that of traditional gasoline-powered vehicles.
  • Specially trained labor may be needed to repair damage to EVs, and insurers will likely need more detailed data sets to properly estimate costs.
  • Auto repair shops will need to continue making investments in people, training and equipment to repair EVs.
  • Repairs may take longer, due to the learning curve, potentially translating into higher car rental replacement costs.

CX Implications:

• Consumers’ full transition to EVs will likely be gradual as EV sales expand each year.
• EV marketing messages need to tackle consumer concerns head-on and educate them on the long-term benefits of EVs.
• As the support systems for these vehicles expand, consumers should become more comfortable with making the transition.
• In the meantime, insurers will need to make the claims and repair processes for EVs equivalent to that of traditional vehicles, or at the very least, educate policyholders on the differences, and risks, to prevent frustration and dissatisfaction with both rates and service levels.

CX Considerations:

• The number of EV owners will continue to grow. Does your CX measurement system allow you to isolate EV owners and considerers, profile them, and anticipate their needs vs. those who are currently resistant to electric vehicles? Are you tracking how this population is changing over time?

ESG considerations will grow over time

Environmental, social and governance considerations, or ESG for short, can be a competitive brand advantage or a weakness, if not addressed in a genuine way.

ESG also encompasses accessibility for those with disabilities. Leading brands recognize that ensuring accessibility in a digital environment is a crucial differentiator. According to Jonathan Avila, Chief Accessibility Officer of Level Access:

“Simply put, there is no separating ESG and accessibility. Ensuring accessibility helps companies to promote social inclusivity and diversity, which is essential for building a positive reputation and maintaining customer loyalty.”

Globally, Ipsos has found that people think more needs to be done for the planet. In a recent worldwide survey, we found that fewer than one-third of survey respondents felt their society had a plan in place to tackle climate change and a strong majority (80%) foresee an environmental disaster unless steps are taken. But there must be action not just words, as a substantial proportion of those surveyed (72%) say many businesses use ESG language without committing to any real change.

• Here in the U.S., we see varying approaches to ESG at the state levels with several state legislatures pushing back on any rules and regulations that require or advocate insurers to integrate ESG-related factors into their business, investment, and strategic decisions, according to an analysis by the Harvard Law School Forum on Corporate Governance.

With so much of insurance law managed at the state level, the regulatory landscape for insurers has become increasingly difficult to navigate and risk-laden due to the varied ways insurers make ESG-related considerations in their underwriting processes. For instance:

• A new Texas law bans ESG-influenced insurance rates.
• 23 state attorneys general have warned the Net Zero Alliance (an advocate of reduced greenhouse gas regulation) that they are engaging in “unlawful activism when they force new market-driven standards for insurance companies.”
• Yet, other states are moving in an opposing direction by passing laws mandating more ESG-related disclosures to regulators and investors.

CX Implications:

• While there will be a continued need to navigate the various state laws, global trends point to increased emphasis on ESG, not less.
• ESG-oriented consumers will not vanish, and they will expect the firms they do business with to share their values.
• Insurers need to establish ESG strategies and actively communicate them to their policyholders.
• Accessibility will become an increasingly important component of usability across digital platforms and tools.

CX Considerations:

• ESG will remain part of corporate responsibility. Are you measuring customers’ and prospects’ perceptions of your brand as it relates to issues around the environment, social, and governance? How are you viewed vs. your competitors on these factors? And how important are these brand images vs. more tactical aspects of the customer experience? Are you thoroughly testing accessibility in your digital products as part of your commitment to servicing all customers equally?

It’s clear that more changes are coming to the auto insurance industry as economic circumstances, driving habits, growth of new technologies including EVs and AI, and the importance of ESG all converge. Insurers need adapt quickly and ensure that they are fully “plugged into” their policyholders’ views on these changes. They must make sure that the accompanying evolution of the customer experience that comes with these changes is fully satisfying and builds customer engagement, rather than detachment.

Ipsos Customer Experience has devised methods to help firms measure, model and manage the customer experience, allowing them to establish long-term relationships with their customers and grow their share of business. Our clients receive clear and actionable insights that enable them to establish a roadmap to growth. We’d welcome the opportunity to talk to you about how we can help.