US auto insurance shopping growth experienced a year-over-year increase of 5.2% in the second quarter, according to the LexisNexis Risk Solutions Insurance Demand Meter.
The growth was driven by consumers reacting to widespread rate increases by auto insurers in an increasingly challenging market. However, while shopping growth remains high, new business volumes have started to surpass shopping, indicating that consumers who are shopping are finding suitable policies that meet their individual needs, LexisNexis reported. The quarterly year-over-year growth in new policies, which represents the rate at which consumers either switched or purchased new coverage, was strong at 10.2%.
“Profitability is still a challenge for many insurers, driven in large part by a continued rise in claims severity across the market associated with rising costs to repair damaged vehicles,” said Adam Pichon, senior vice president of auto insurance and claims at LexisNexis Risk Solutions. “As a result, most carriers are being much more discerning in their underwriting processes and cutting back on marketing spend, but motivated shoppers still sought better cost savings, and switched their policies in record numbers in May and June.”
The US auto insurance market has been facing difficulties due to increased claims severity, which has seen six consecutive quarters of at least 5% growth, the report found. Rising repair and replacement costs, driven by labor and part shortages, have led to more total losses, with 27% of collision events in 2022 resulting in total losses. Insurers are responding by adjusting rates, reducing marketing spend, and some larger carriers have even withdrawn from higher-risk markets.
Consumers are responding to these challenges by shopping for cost savings and consolidating their policies. While new policy volumes continue to rise, the growth of in-force auto insurance policies has slowed below traditional averages. This is primarily due to household consolidation, with more drivers, such as adult children moving back in with their parents or relatives, being added to existing policies. The Insurance Demand Meter analysis suggests that there may be as many as 2.4 million fewer policies in the market in the second quarter due to household consolidation.
Looking ahead, Pichon advises closely monitoring the property insurance market, which may follow the lead of the auto insurance market in raising rates.
“We indicated in previous editions of the Demand Meter that there would be an opening for opportunistic shoppers to find cost savings when shopping for auto insurance this year, and that was certainly the case,” Pichon said. “But how long can certain carriers that have been slower to take rate afford not to do so at the scale of some of their competitors? Now, we are seeing some similar rate-taking activity on the property insurance side of the equation, which could be another key factor that drives shopping over the remainder of the year.
"A lot of carriers are gearing up for the next round of rate increases. How consumers respond with respect to shopping in Q3, including how many more might exit the market, should give us a pretty good look at what 2024 may hold.”
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