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How carriers can avoid passing inflation costs on to customers

As the cost of doing business rises, insurers need to find new ways to meet consumers' needs.

Rising prices are placing financial pressure on households nationwide, affecting everything from the gas pump to your morning cup of coffee and, of course, your car insurance.

Rising prices are placing financial pressure on households nationwide, affecting everything from the gas pump to your morning cup of coffee and, of course, car insurance.

Offering discounts to safe drivers will allow insurers to stay competitive in target markets even while adding rate…

Inflation reached a four-decade high in June 2022, rising to 9 percent1, putting greater loss cost pressure on an environment with already-increasing severity. The cost of auto body repairs grew 8 percent in November 2021 compared to 2020, the highest increase in four decades.2 This was a large contributor to premiums increasing 12 percent in 2021, with the expectation they will rise 5 percent in 2022.3

As personal auto insurers deal with a hard market as pure premium returned to or exceeded pre-pandemic levels for each of the last three quarters last year4, these factors compound an already challenging pricing environment. Since 2016, severity for vehicle damage – including property damage and collision coverage – increased 29.6 percent as of 3Q21.5

With ongoing supply chain issues and now historic inflation, the auto repair industry is seeing higher costs for available parts, labor, and rentals. Inevitably, insurers will be forced to pass these costs along to consumers. 

Rate increases can significantly impact the flow of new business to carriers and impact renewal retention. To soften the impact, auto insurers will need to find new ways to avoid disrupting the flow of new business and mitigate impacts to retention.

Telematics to the rescue

By implementing telematics at point of quote, insurers can add another layer of segmentation to their rating plan. Offering discounts to safe drivers will allow insurers to stay competitive in target markets even while adding rate to offset the higher loss costs environment we’re observing.

Verisk’s DrivingDNA® Score can help support more precise, behavior-based risk segmentation and pricing accuracy. The DrivingDNA Score can pair with an insurer’s existing rating plan resulting in better than average bind rates in target segments while acting as a powerful indicator of future claims, helping to improve risk segmentation with a 5.5x loss ratio lift between the safest and riskiest drivers. Testing shows a 12x difference in expected losses between the worst and best-scoring , capturing the effects of both frequency and severity. 

The DrivingDNA Score and rating rule offer a bolt-on approach, where insurers can add usage-based insurance data to their scoring model in as little as three months. If eligible, consumers can see the benefit at point of quote, using data sourced from their connected car to reveal insights about their driving behavior. The score can be calculated with as few as ten weeks of historical driving data.

The Driving DNA Score can also be calculated for other sources of data such as an insurer’s existing mobile app-based telematics program.  Alternatively, for an insurer wanting to use a proprietary UBI score, Verisk can create custom data features to meet an insurer’s needs with the DrivingDNA Data product.

Another option for insurers looking to meet profitable growth objectives is working with Verisk for an instant analysis of Verisk’s telematics products. The analysis will run an insurer’s book of business through Verisk’s models to quickly assess the impact using telematics for rating would have for an insurer.

As inflation and supply chain issues continue to increase costs, employing telematics and Verisk’s DrivingDNA suite of solutions can help add additional segmentation, rewarding safe drivers with discounts and allowing insurers to remain competitive on these risks.

To learn more, visit https://www.verisk.com/insurance/capabilities/telematics/

Innovation Strategies For Auto Insurance Underwriting 1

To learn more about how to adapt to these issues, download the new Verisk white paper, Innovation Strategies for Auto Insurance Underwriting: Accelerating Competitiveness with a Digital Insurance Ecosystem.

Download the white paper

Gregory Jacobs

Gregory Jacobs is Director of Product Management, IoT/Telematics at Verisk.


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  1. 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 July 14, 2022
  2. CollisionWeek, “U.S. Auto Body Repair Prices Up Over 8% in November Compared to 2020,” December 10, 2021, < https://collisionweek.com/2021/12/10/u-s-auto-body-repair-prices-8-november-compared-2020/> , accessed July 14, 2022
  3. Insurify, “2021: Insuring the American Driver Trends in Cost & Coverage,” < https://insurify.com/report/auto-insurance/2021/>, accessed July 14, 2022.
  4. David Ayers, Brad Magick, and Dorothy Kelly, “Between and Rock and a Hard Market”, 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 July 14, 2022 and ISO Personal Auto Statistical Plan data for Q4 2021
  5. American Property and Casualty Insurance Association, “Auto Insurers Struggling To Keep Pace with the Highest Inflation in 40 Years,” February 2022, < https://www.apci.org/attachment/static/5944 > accessed on July 14, 2022

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