Insights into Auto Insurance Rating Factors and Market Overview
Understanding the complexities of auto insurance rating factors is essential for both insurers and consumers. The National Association of Mutual Insurance Companies (NAMIC) plays a significant role in overseeing the $323B auto insurance market in the U.S. This includes aspects such as the mandatory nature of auto insurance, the importance of accurate underwriting and pricing, and the factors influencing policy rates. By considering key principles like accuracy, homogeneity, and credibility, insurers aim to provide competitive pricing while managing risks effectively within a highly regulated industry.
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AUTOMOTIVE BODY PARTS ASSOCIATION ANNUAL MEETING APRIL 2023
NAMIC OVERVIEW Largest P/C insurance trade association in the U.S. with more than 1,500 local, regional, and national mutual insurers and related member companies. Seven of the Top 10 property/casualty companies in the U.S. Profile: $38 million in revenue, including affiliates and its insurance company, NAMICO. 25 advocates and policy experts in Washington D.C. and across U.S. Largest insurance company trade PAC in America -- $1.2M for the 2020 NATIONAL ASSOCIATION OF MUTUAL INSURANCE COMPANIES election cycle. [ 2]
NAMIC AT A GLANCE $323B 1500 Represented in Annual Premiums More than 1500 Member Companies 67 % 55% 32% Of the U.S. Auto insurance market Of the U.S. home insurance market Of the U.S. business insurance market [ 3 ] NATIONAL ASSOCIATION OF MUTUAL INSURANCE COMPANIES
AUTO INSURANCE FUNDAMENTALS Auto insurance is mandatory under state law in 49 states Minimums, verification, and enforcement processes vary widely Auto insurance is a highly regulated product Rates and methodologies are filed with and approved or acknowledged by state DOI s NCOIL and NAIC closely monitor auto insurance availability and affordability The underwriting and rating of policies is a complex, sophisticated, time-consuming exercise that aims to use credible data to correlate prices as closely as possible to the likely cost of claims Rates are prospective and already designed to be sensitive to claims frequency and severity The more accurately a company estimates actual costs, the better they are able to serve their policyholders Auto insurance rates respond to systemic changes and behavioral patterns over periods of years, not weeks or months [ 4 ] NATIONAL ASSOCIATION OF MUTUAL INSURANCE COMPANIES
RATING FACTOR PRINCIPLES Auto insurers primary objective is to match rate to risk as closely as possible Accurate, data-based underwriting and pricing fuel competition and healthy markets Competition and healthy markets: Increase availability of insurance and innovation Improve consumer choices and service Reduce consumer cost The best rating factors focus on: Accuracy Statistically significant correlation to losses Homogeneity Similar expectations of losses Credibility Sufficiently large observations Insurers must also consider: Expense of administering factors Objectivity of data Accuracy of Data [ 5 ] NATIONAL ASSOCIATION OF MUTUAL INSURANCE COMPANIES
THE DEFENSE OF RISK-BASED PRICING Since 2020, there has been a significant uptick in attacks on risk-based pricing in insurance: Unfounded allegations that that insurance companies engage in systemic unfair discrimination in pricing and underwriting that have disproportionately negative effects on minority communities Disproven allegations of windfall profits during COVID-19 lockdowns despite the fact that at no point was any covered policyholder unable to get in their vehicle and drive Attacks on individual rating factors: Criminal History Credit Based-Insurance Scores Gender Occupation Education Age Discrimination on the basis of risk is not unfair discrimination [ 6 ] NATIONAL ASSOCIATION OF MUTUAL INSURANCE COMPANIES
NAMIC RBP INITIATIVE RESEARCH AND TOOLKIT INDUSTRY TOOLKIT Research Highlights: 90% of respondents are satisfied with their current #autoinsurance. 87% believe riskier drivers should pay more for auto insurance. 65% think it s acceptable for auto insurers to provide discounts to drivers who are deemed statistically less risky, using factors other than driving record. 55% believe that auto insurers should use all available information to identify risky drivers so that safe drivers pay less Only 8% believe auto insurers look at racial composition of a geographic area when considering ZIP code as a rate factor; 92% acknowledge that ZIP code is used to identify risk, not race [ 7 ] NATIONAL ASSOCIATION OF MUTUAL INSURANCE COMPANIES
AUTO INSURANCE REALITY MORE [ 8 ] NATIONAL ASSOCIATION OF MUTUAL INSURANCE COMPANIES
MORE CARS AND DRIVERS WITH MORE WHEEL TIME Why Nobody Will Own A Car in 15 Years Business Insider The End of Car Ownership Wall Street Journal Owning A Car Will Soon be a Thing of the Past The Guardian Say Goodbye to Owning Your Own Car U.S. News & World Report AND YET IN 2023 More than 283 million vehicles on US roads More than 230 million licensed drivers 76 % of American commuters use their cars to get to work Average American will spend 51 minutes per day behind the wheel in 2023 that s almost 13 days of driving [ 9 ] NATIONAL ASSOCIATION OF MUTUAL INSURANCE COMPANIES
MORE SPEEDING, CRASHES, AND DEATHS Overall VMT across the country was down 13% for 2020, but: Despite the decrease, in 2020 traffic fatalities were UP 7% - 38,680 deaths according to NHTSA Fatality rate per 100 million VMT was UP 24% in 2020 Record numbers of citations for 100+ mph traffic violations 2021 was similarly grim 42,939 deaths 2022 may have us turning a corner 0.2% decrease over first 9 months This is a crisis. We cannot and should not accept these fatalities simply as part of everyday life in America. It will take all levels of government, industries, advocates, engineers, and communities across the country working together toward the day when family members no longer have to say goodbye to loved ones because of a traffic crash. - Hon. Pete Buttigieg, U.S. Secretary of Transportation [ 10 ] NATIONAL ASSOCIATION OF MUTUAL INSURANCE COMPANIES
MORE DISTRACTED AND IMPAIRED DRIVING Distracted driving causes more than 1 million crashes per year In 2021, 3,522 people were killed in distracted driving crashes In 2021, 450,000 people were injured in distracted driving crashes Severe disconnect between consumer perceptions and consumer behavior Impaired driving accounts for nearly 10,000 lives lost per year More than one life every hour of every day Cannabis and alcohol use both increased since COVID onset Stress of COVID, job losses, evictions, death of loved ones, and uncertainty all contributed Perception law enforcement would be sidelined by COVID March and April 2020 saw DUI arrests decline, but the remainder of the year saw over 40% year-over-year increases in DUI arrests in some of the largest jurisdictions [ 11 ] NATIONAL ASSOCIATION OF MUTUAL INSURANCE COMPANIES
MORE EXPENSIVE CARS, PARTS, AND REPAIRS Average new car in the U.S. now costs more than $48,000 Average used car in the U.S. now costs $33,000 2017 Toyota Camry 2018 Toyota Camry Total parts in front bumper assembly: 43 Total front bumper repair cost: $2,063.73 Total parts in front bumper assembly: 18 Total front bumper repair cost: $947.43 [ 12 ] NATIONAL ASSOCIATION OF MUTUAL INSURANCE COMPANIES
MORE EXPENSIVE CARS, PARTS, AND REPAIRS Top 10 most frequently replaced auto parts are all up significantly over last 4 years % Avg OEM Price Delta 2021 vs 2017 37.82% 40% 35% 29.86% 30% 25% 20% 16.21% 15.74% 13.34% 13.15% 15% 12.47% 11.32% 10.59% 10% 4.77% 5% 0% BUMPER COVERS GRILLS FENDERS DOORSHELLS HEADLAMPS HOODS DECKLIDS QUARTER PANELS CONDENSERS RADIATORS Cost of training, labor, and diagnostics are all increasing at same time Nearly 80% of vehicles repaired in 2021 received complex diagnostic scans, the average cost of which is more than $120 [ 13 ] NATIONAL ASSOCIATION OF MUTUAL INSURANCE COMPANIES
MORE, MORE, MORE More expensive medical care Medical care supplies are up 30% and hospital services up 46.3% since 2010 More extreme weather Hurricanes, wildfires, named storms, and other natural disasters are increasingly frequent 2020 broke multiple records for weather and climate disaster events in the U.S. Following a hurricane, auto claim severity rises by as much as 300% More Theft and Fraud Auto theft has increased 17% since 2019 more than 932,000 vehicles stolen across the country in 2022 one every 35 seconds Catalytic converter thefts were up over 400% CAIF estimates auto insurers lose at least $29 billion per year to fraud [ 14 ] NATIONAL ASSOCIATION OF MUTUAL INSURANCE COMPANIES
MORE NEW (AND OLD) ISSUES FEDERAL REPAIR Act (H.R. 906) SMART Act (H.R. 1707) PART Act (H.R. 621 / S. 154) National AV Legislation? Electrification Issues Alphabet Soup Engagement: DOT: NRSS FIO (Treasury) GAO NHTSA FMCSA STATE Factor prohibitions Catalytic Converters AOB Reforms TNC / DNC Evolution Peer-to-Peer Car Sharing AV Legislation OEM Parts Mandates Distracted Driving Enforcement Drugged Driving / Cannabis [ 15 ] NATIONAL ASSOCIATION OF MUTUAL INSURANCE COMPANIES
NAMIC COMMITMENTS New High-Profile Partnerships Coalition Against Insurance Fraud www.insurancefraud.org Governors Highway Safety Association www.ghsa.org National Alliance to Stop Impaired Driving www.nasid.org Enhanced Participation in existing Industry Efforts Advocates for Highway & Auto Safety www.saferoads.org Insurance Industry Committee on Motor Vehicle Administration www.iicmva.amplivity.com Insurance Institute for Highway Safety / Highway Loss Data Institute www.iihs.org National Insurance Crime Bureau https://www.nicb.org/ Outreach to Establish Relationships with additional Stakeholders beyond Insurance American Association of Motor Vehicle Administrators www.aamva.org Consumer Access to Repair Coalition www.carcoalition.org National Association of City Transportation Officials www.nacto.org National Safety Council www.nsc.org Partnership for Autonomous Vehicle Education www.pavecampaign.org [ 16 ] NATIONAL ASSOCIATION OF MUTUAL INSURANCE COMPANIES
REAL SOLUTIONS REQUIRE REAL WORK Embrace Consumer Choice, Data Privacy, and Education Right to Repair Data Access Promote Sound Underwriting Remove restrictions on discounts and rebates Resist calls to restrict underwriting and rating factors Preserve or expand insurer ability to use driving records Preserve use of territory rating Preserve use of direct-repair programs Enhance Study, Education, and Enforcement of Auto Laws Stop Civil Abuse of Phantom Damages [ 17 ] NATIONAL ASSOCIATION OF MUTUAL INSURANCE COMPANIES
QUESTIONS? COMMENTS? RECOMMENDATIONS? ADVICE?
