In accordance with a fresh report by TransUnion, the purchase rate of automobile insurance witnessed a 12% year-on-year increase in the second quarter of 2023.
As per a press release from TransUnion, while the growth in car sales played a role, the primary impetus remains the pursuit of reduced insurance premiums. In comparison to June 2022, the Consumer Price Index for motor vehicle insurance soared by 17% in June 2023.
The latest quarterly report titled “Insurance Personal Lines Trends and Outlook” by TransUnion meticulously delves into these revelations. The report extensively scrutinizes trends within the automobile and property insurance sectors, coupled with survey data pertaining to consumer behavior and attitudes.
Growth Evident in All Credit-Based Insurance Scoring Groups
Despite historically elevated car prices and surging insurance costs, JD Power’s forecast for the US automobile industry in June 2023 predicts a 23% year-on-year increase in new car sales. Simultaneously, due to an amelioration in new car inventories, sales of used cars experienced a minor dip.
“During Q2 2022, shopping activity among high-risk consumers experienced a downturn, partly attributed to insurance companies curtailing marketing expenditures,” noted Stothard Deal, Vice President of Insurance Business Strategy at TransUnion. “In Q2 2023, we observed a rebound in activity within this segmented market. Low-risk consumers have been shopping at higher prices over the past 12 months.”
Property Insurance Purchase Momentum Slows but Maintains Uptrend.
The report discloses that homeowners are also opting for lower-rate products, with property insurance purchase volumes among this demographic rising by 13% in Q2 2023 compared to the same period last year. However, shopping rates dipped by 7% when compared to Q1 2023, possibly due to rising interest rates and persistently high property prices.
TransUnion asserts that this presents potential challenges and opportunities for insurance companies catering to Generation Z and Millennials. As these groups struggle to afford housing due to steep costs, some individuals might choose to reside in regions more prone to natural disasters, significantly impacting insurance losses. TransUnion highlights that others may simply opt to continue renting, presenting an opportunity for insurers to modernize insurance products for renters.
“It’s time for insurance companies to consider how best to engage with the upcoming Generation Z customers,” stated Deal. “We know they are more likely to learn about new products and services from social media and appreciate personalized offers.”
Emerging Risks for Drivers and Insurance Companies
TransUnion’s comprehensive report warns that a potential factor contributing to profitability challenges is the deterioration of driving behavior. The company’s report notes that vehicle miles driven substantially plummeted during the initial stages of the pandemic, only to return to pre-pandemic levels. However, in comparison to the pre-COVID-19 annual average, moving violation rates have still decreased by nearly 13%.
The report asserts, “While this might sound like good news, a closer examination reveals a different picture.” “Fatal accidents have reached their highest levels in decades, 22% higher than the average pre-COVID-19 levels. Deaths resulting from alcohol intoxication, speeding, and failure to wear seatbelts have increased by around 20%.”
TransUnion’s report suggests that the reduction in moving violations is not due to changes in driving behavior, but rather shifts in traffic enforcement. Insurers often leverage these violations to impose surcharges on high-risk drivers. However, TransUnion estimates that since 2020, the decrease in moving violations has led to an annual loss of around $200 million in insurance premium revenue for the auto insurance industry, which will be offset by increased rate burdens on all drivers.
Driver sentiment is also evolving. According to TransUnion’s Q1 2023 Insurance Consumer Survey, 35% of Generation Z drivers believe it’s unnecessary to wear seatbelts for short trips, and 30% of Millennials find speeding acceptable—both proportions surpassing those of older age groups.
Insurers Implement Mitigation Strategies as Consumer Landscape Shifts
TransUnion forecasts that the insurance industry will continue grappling with profitability challenges.
“As insurance companies seek rate adequacy through premium increases, they are taking actions to temporarily reduce losses, including limiting distribution channels, strengthening underwriting for new business, bundling policies only as part of multi-line offerings, and even exiting certain regional markets,” the report states.
Meanwhile, the company’s report claims that with prices on the rise, consumers will continue shopping, though the mentioned mitigation strategies “may make the switch more challenging.” The company believes that as more members of Generation Z enter their credit-active adulthood and increasingly seek home and auto insurance, consumer patterns will evolve.
