Rising car insurance costs – and how AI can help carriers compete

There are a number of reasons why prices are rising, as well as issues that high inflation presents for insurers and the auto industry. Let’s explore the events leading up to this situation, why costs have risen so high and what insurers might do to mitigate its effects and improve customer service.

Understanding rising insurance costs

To understand why insurance costs appear to be rising so dramatically, we need to go back to what happened when the pandemic hit in 2019. As COVID-19 changed how people lived and worked, it began a wave of events throughout the auto insurance industry. 

Because there were less people driving and fewer accidents, insurance carriers experienced a significant drop in accident claims, while also taking much of their claims assessment workforce off the road. 

With less claims to pay out and lower administrative costs, auto insurance carriers were singled out and placed under massive public pressure to give rebates – which many insurers did throughout the US in 2020. In fact, the American Property Casualty Insurance Association (APCIA) reported that auto insurance carriers provided over $14 billion in refunds and credits to their policyholders in 2020 to compensate for reduced traffic during the pandemic.

“Basically in auto insurance, all the costs went up.”

Crucially, at the time that insurance carriers were giving rebates and taking deflationary measures, costs were still rising with inflation across other entities in the auto industry. The only difference was, these other entities – OEM manufacturers, suppliers and body shops – naturally raised prices alongside inflation. 

Over the two year period of the pandemic, insurance companies would normally have reflected price increases. This meant that, as the US started to emerge from the pandemic and consumer demand returned, something had to give. 

As industries steadily began to recover, inflation surged higher and increases in customer demand outstripped the ability of the supply chain to deliver – causing a ripple effect throughout the auto industry. For example, used car prices soared – this was driven by high demand because of the slowdown in new car production, caused by the widespread and ongoing disruption to supply chains and the global semiconductor chip shortage. 

At the same time, as more people got back on the road in 2021, there was an increase in the frequency and severity of auto accidents – possibly a reflection of widespread anxieties around the pandemic.1

These interrelated economic and social factors have consequently driven up the cost of insuring and repairing cars in the US and around the world. As Allstate CEO Tom Wilson succinctly put it,

The way forward: straight-through processing

Though we’re in an unpredictable market that’s likely to remain volatile, there are ways to mitigate its future impacts, control costs and deliver a more customer-focused experience. 

Right now, insurance carriers have a real opportunity to gain a greater competitive advantage through digitization and straight-through processing (STP) with integrated AI solutions. 

For example, by empowering customers to instantly assess damage at first notice of loss (FNOL), using visual AI on their smartphone cameras, insurers can enable fast and accurate estimating, swift procurement and parts delivery ahead of time to body shops and accelerated repairs to dramatically shorten key-to-key times for customers in the claim cycle. 

It seems fair to say that STP is exactly the kind of fast, reliable and touchless claim experience that post-pandemic policyholders expect and want – all available through the customer’s smartphone.

Just as Starbucks revolutionized coffee-lovers’ morning routines with its order-ahead and pickup app, insurance carriers can also deliver an similarly outstanding customer experience – a ‘wow’ moment of ease and efficiency – in the claims process. 

STP, augmented by visual AI calibrated to company standards, will significantly speed up the time it takes to make a claim, reduce touchpoints and improve customer services with more user-friendly features. It’s a solution that not only meets the rapid shifts in customer demands, but also helps insurers gain an edge in this ever-shifting, highly competitive market. 

Gaining an edge with STP 

A key advantage of STP is that, by streamlining data sharing between different points in the insurance process, it captures valuable data that can inform how insurers can further enhance their claims processes. 

Data gathered through STP can be analyzed to help refine business rules and optimize processes to match operational needs, enabling overall improved and streamlined customer experiences that can get drivers back on the road as quickly and safely as possible. 

See for yourself how Tractable can help insurers optimize their operations using integrated AI solutions, contact us for a demo.