In 2023, auto insurance premiums saw their largest annual increase in almost 50 years, a staggering 19%, surpassing the 4% inflation rate. The primary culprit behind this surge? Soaring claims costs.

In a recent webinar, industry experts from Forrester, Insurance Thought Leadership, and CCC Intelligent Solutions discussed innovative solutions to address this industry-wide challenge, including leveraging AI to maintain profitability and take the pressure off premiums.

→ Watch the webinar discussion:

Here are the key highlights and recommendations from their presentation:

The Impact of Premium Inflation

Consumers are feeling the brunt of the premium rate hikes, with carriers concerned about customer retention. Forrester data highlights varying responses across generations, with 41% of Millennials considering switching providers compared to 31% of Baby Boomers.

Additionally, financial constraints are leading 10% of Gen Z drivers to let their policies lapse or drive without coverage. The rate increase impact deepens when premiums do not align proportionately with the rise in claims costs, leading to eroding underwriting profits and increased reserve funds. 

Strategies for Carriers

Addressing rising premiums necessitates a data-driven approach to claims management. The expert panel proposed the following strategies, including the integration of photo-based AI into the claims process, emphasizing the importance of settling claims quickly, and adopting technology to manage resource turnover efficiently.

• Photo-Based AI: Photo-based AI is gaining traction for its ability to swiftly detect potential casualties and understand the nature of exposures. By capturing images at the onset of a claim, carriers can make more informed decisions, contributing to more accurate outcomes. This technology is particularly crucial for casualty claims, where injuries and treatment often relate to pre-existing conditions.
• Earlier Data Access: Recognizing risk exposure earlier and understanding the nature of the exposure enables carriers to streamline claim processes through workflow automation. CCC VP of Casualty, Kevin Moynihan, emphasized the importance of early data for casualty claims, allowing insurers to take proactive steps in the crucial initial weeks of a claim.
• Augmented Resources: With national carriers experiencing 50% first-year turnover, technology becomes essential to managing the downstream impacts of resource turnover on claims costs. Adopting tools that equip adjusters with necessary information early in the process can enhance efficiency and accuracy.
• Digital Communication & Transparency: Digital communication with customers can significantly improve transparency in the claims process, leading to a better-informed customer experience. Moynihan stressed the benefits of a digital channel, reducing the likelihood of frustrated claimants seeking legal assistance and streamlining the claims organization's manual workload. 

Looking Ahead

Navigating the intersection of rising claims costs and increasing premiums is undeniably complex, but it is a challenge that the industry must address. Carriers are urged to embrace innovation, even if they find it challenging to introduce technology into their core claims systems and workflows.

Managing the claims-cost-to-premium ratio through innovation is essential to rebalance the industry's financial health while ensuring affordability for policyholders. As industry leaders grapple with this dilemma, there is help available for those willing to explore new approaches.

‍→ Click here to download the full report.