More people are driving as pandemic restrictions have eased. However, many drivers have altered their driving behavior and have not returned to their pre-pandemic driving levels. More drivers and insurers are also adopting technology that tracks vehicle locations and driving metrics. The change in driver habits as well as the technology that monitors those habits will play a significant role in the auto insurance industry. Here are three auto insurance industry predictions for 2022.
Auto insurance premiums are rising for several reasons. Inflation has hit a 40-year high, rising 8.5% for the 12 months ending in March. In addition, the average used car sold for over $28,000 in January, a 42% increase from before the pandemic. The price of used cars has spiked due to high demand and a worldwide shortage of semiconductor chips. These are also known as microchips, and new vehicles require about 40% more microchips than cars made before the pandemic do.
Typically cars with more advanced technology are more expensive to fix. This makes them more costly to insure due to the higher costs of repairs, including replacing parts — especially for foreign cars — or having to replace a vehicle in the event of a total loss.
Real-time driving scores
One of the biggest innovations in recent years has been the use of telematics. Telematics is technology that monitors vehicles in real-time through GPS. It also monitors driving habits such as speed, hard turns, and braking. Tesla provides drivers with near real-time safe driving scores. Telematics technology is becoming more widely used by major insurers including Nationwide, State Farm, Allstate, Progressive, and Geico.
According to Kelly Hernandez, Associate Vice President of Personal Lines Telematics at Nationwide, more consumers are taking advantage of “usage-based capabilities and are saving money as they take more control over the prices of their insurance protection.”
Since releasing their SmartRide Instant program, certain Nationwide customers can receive an instant discount on their premiums based on their driving history. The program also includes a distracted driving feedback experience to help reduce distractions such as cellphone use. Hernandez states “This will hopefully prevent accidents…making the roads safer.”
More customizable insurance policies
As a result of insurers and drivers adopting telematics at a rapid rate, insurers can offer coverage that is specifically based on drivers’ habits and miles driven. As opposed to a “one-size-fits-all policy,” drivers will now be able to customize auto insurance coverage based on their unique needs.
In 2019, Nationwide launched their SmartMiles program, a pay-per-mile solution where the premium is based on how many miles driven. Monthly rates are flexible and vary based on that mileage number. The program was started to focus on low-mileage drivers — those that use public transportation, seniors, students, those who work close to home, and those with extra vehicles. Many drivers have permanently changed their driving behavior due to the pandemic, especially those that work from home and are using their vehicles less.
With vehicles becoming more expensive and telematics able to monitor an individual driver’s habits behind the wheel, auto insurance companies will be offering more targeted policies to meet consumer demand. Usage-based insurance programs and customized rates will soon become the norm. With auto insurers having access to billions of miles of driving data using telematics, they will be able to better understand how their customers drive and more accurately price their policies.
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