Non-rate actions: Dial in profit during a hard personal auto market

October 3, 2022 / 3 min read

nonrate

The direction of claims increasingly suggests a hard market for the industry in 2022. There may be no cure-all for this significant headache, but several non-rate actions—solutions that don’t require a rate filing—can be dialed in to help with profitability.

Personal auto insurers’ margins are under pressure during an unprecedented hard market. From the pandemic to supply-chain issues to inflation to increased regulatory scrutiny, insurance leaders face a combination of challenges unlike anything they’ve seen:

Pure premium began the year at or exceeding pre-pandemic levels for each of the previous three-quarters.¹
As a result, in 2021, the industry’s direct combined ratio broke 100 for the first time since 2017.²
In June, inflation reached a 40-year high, rising to 9 percent.³
In July, auto-body repair prices hit a 44-year high, up nearly 15 percent.⁴
Meanwhile, some state departments of insurance (DOIs) are withholding or delaying rate increase approvals on new business, leading one of the country’s largest insurers to eliminate all of its California agencies.⁵

How can you improve results while watching expenses and prioritizing limited IT capacity? There may be no cure-all for this significant headache, but several non-rate actions—solutions that don’t require a rate filing—can be dialed in to help with profitability.

Consider one of the most promising non-rate-action strategies for insurers and how Verisk innovations can help.

Combat premium leakage with renewal underwriting programs

Earlier this year, I offered six best practices to optimize personal auto book health.⁶At the top of the list was prioritizing the pursuit of pandemic- and inflation-driven premium leakage.

pandemic-premium-leakage-diagram

What to dial in: Here are seven renewal-business “levers” insurers can use to tighten their focus on profitability:

Pursue premium from discovered drivers not currently on policies
Verify and true up annual mileage
Fix garaging discrepancies
Verify usage such as commute, pleasure, or business
Identify and rate missing violations
Confirm other discounts
Increase nonrenewals when unable to get the right rate for the risk

How Verisk Can Help

With regulators pumping the brakes on personal auto rate hike requests, renewal underwriting programs are among the fastest ways to keep insurers’ books of business profitable. Verisk can help in two ways:

A quick batch run of powerful renewal underwriting analytics, with little or no IT lift, can leverage unique data sources such as Infutor, Verisk’s recent acquisition, to discover missing drivers, validate underreported mileage, identify vehicle registration/title issues, and more.
With Verisk’s turnkey RISK:check® Renewal suite, you can outsource all of the steps, from potential premium leakage identification and analytics scoring to prioritization of missing-premium pursuit and policyholder outreach. This program has an average return on investment of 7:1 in the first year and 22:1 over the policy life cycle.¹⁵

verisk-table-auto

Dial in Non-Rate Actions to End the Year

Some focused effort today can capture missing premium in 2022 and position you for a better 2023. Further non-rate actions you may consider include making intelligent marketing choices to gain advantages during a time with more shopping and less competition, pausing or closing distribution channels, tightening eligibility guidelines, modifying payment plans, and increasing actions in the initial underwriting period.

We encourage you to connect with your Verisk account executive to consult on potential non-rate actions to dial in profitability during this hard market, and feel free to reach out to me to discuss your auto book health and Verisk innovations.

David Ayers, Brad Magick, and Dorothy Kelly, “Between and Rock and a Hard Market: Solutions for Personal Auto Insurers”, Verisk’s Visualize, May 5, 2022, < https://www.verisk.com/insurance/visualize/between-a-rock-and-a-hard-market-solutions-for-personal-auto/>, accessed on October 3, 2022 and ISO Personal Auto Statistical Plan data for Q4 2021
AM Best Aggregates and Averages, 2017-2022
Federal Reserve Bank of St. Louis (FRED), Consumer Price Index for All Urban Consumers: All Items in U.S. City Average, June 2022 < https://fred.stlouisfed.org/series/CPIAUCSL#> accessed on October 3, 2022
Collision Week, “U.S. Auto Body Repair Prices Up Nearly 15% In July Compared to Last Year,” August 12, 2022 < https://collisionweek.com/2022/08/12/u-s-auto-body-repair-prices-nearly-15-july-compared-last-year/ > accessed on October 3, 2022
Renee Kiriluk-Hill, “California Commissioner Withholds Auto Insurance Rate Approvals, Rattles Market,” AM Best Information Services, August 10, 2022, < https://news.ambest.com/newscontent.aspx?AltSrc=104&RefNum=243607 > accessed on October 3, 2022
Brad Magick, “How Insurers Can Optimize Their Auto Book Health”, Property Casualty 360, February 1, 2022< https://www.propertycasualty360.com/2022/02/01/how-insurers-can-optimize-personal-auto-insurance-book/ >, accessed on October 3, 2022
Dorothy Kelly and Raul Retian, “2021 Personal Auto Growth and Profitability: Unprecedented in New Ways”, Verisk’s Visualize, November 22, 2022, < https://www.verisk.com/insurance/visualize/2021-personal-auto-growth-and-profitability-unprecedented-in-new-ways/>, accessed on October 3, 2022
Brad Magick, “Personal Auto Research: Application Integrity Down, Fraud Up”, Verisk’s Visualize, April 14, 2021; 6.4% of applications had one or more fraud triggers between 2013-2016 vs. 8.5% during 2017-2020 < https://www.verisk.com/insurance/visualize/personal-auto-research-application-integrity-down-fraud-up/>, accessed on October 3, 2022
Verisk client research
Richard Fry, Jeffrey S. Passel, and D’Vera Cohn, “A Majority of Young Adults in the U.S. Live with Their Parents for the First Time Since the Great Depression”, Pew Research Center, September 4, 2020 < https://www.pewresearch.org/fact-tank/2020/09/04/a-majority-of-young-adults-in-the-u-s-live-with-their-parents-for-the-first-time-since-the-great-depression/>, accessed October 3, 2022
Dorothy Kelly and Raul Retian, “Unpacking 2021’s New Normal in Personal Auto Mileage”, Verisk’s Visualize, September 14, 2021, < https://www.verisk.com/insurance/visualize/unpacking-the-2021-new-normal-for-personal-auto-mileage/>, accessed on October 3, 2022
Verisk client experience
Ibid.
Brad Magick, “Personal Auto Research: Application Integrity Down, Fraud Up”, Verisk’s Visualize, April 14, 2021; 6.4% of applications had one or more fraud triggers between 2013-2016 vs. 8.5% during 2017-2020 < https://www.verisk.com/insurance/visualize/personal-auto-research-application-integrity-down-fraud-up/>, accessed on October 3, 2022
Verisk client experience
Renee Kiriluk-Hill, “California Commissioner Withholds Auto Insurance Rate Approvals, Rattles Market,” AM Best Information Services, August 10, 2022, < https://news.ambest.com/newscontent.aspx?AltSrc=104&RefNum=243607 > accessed on October 3, 2022