LexisNexis Insurance Demand Meter: Auto Insurance Growth Declines but Volume Sets Record

A continued downshift in shopping growth parallels the low point seen in Q2 of 2022, while new policies see record volumes in August and September in response to continued rate increases.

(Image credit: Joshua Yu/Unsplash.)

The latest edition of the LexisNexis Insurance Demand Meter reports the quarterly year-over-year U.S. auto insurance shopping growth rate declined to -1.2 percent in Q3 2023, down from +5.2 percent growth in Q2 2023 as rate increases and tightening budgets continue to impact consumers. The LexisNexis Risk Solutions (Atlanta) analysis also showed that new policy growth, or the rate at which consumers either switched or purchased new coverage, was also down from last quarter (3.9%, compared to 10.2% in Q2 2023), yet even with lower growth numbers, August and September saw record volumes of new policies.

Adam Pichon, SVP, Auto Insurance and Claims, LexisNexis Risk Solutions.

“This quarter’s Demand Meter reminds us that the industry is still reconciling with significant macro trends that have shifted the auto insurance market significantly,” comments Adam Pichon, SVP, Auto Insurance and Claims, LexisNexis Risk Solutions. “Ongoing rate increases and changing demographics continue to contribute to near-record shopping volumes, while claims severity continues to drive profitability challenges for insurers. The combination of these trends has created a challenging environment that has been the theme for insurers in 2023.”

Insurance shopping slows but remains elevated, with demographic shifts at play as consumers seek cost savings

For the first time since Q2 2022, shopping growth registered as ‘Cool’ on the Insurance Demand Meter, continuing a downshifting trend that began in June. This trend does not come as a surprise, as the industry begins to overcome the elevated market activity that began in Q3 2022. While efforts by insurers to scale back new business have helped suppress shopping rates, consumers are still shopping at high volumes in response to ongoing rate increases, which are projected to net out at over 14 percent on average for 2023.

LexisNexis Insurance Demand Meter Q3 2023. (Click to enlarge.)

A deeper dive into shopping trends uncovers continuing shifts in demographics, with growth in the 65+ age group and declines in younger age groups—specifically those under 35 years old. Those 65 and over now make up 14 percent of new auto insurance policy purchases, up from 10 percent in early 2022, while new policy purchases for those under 35 have dropped from 40 percent to 35 percent in that same period.

Key to explaining this demographic shift has been the larger trend of household consolidation, which LexisNexis Risk Solutions reports that it first saw influencing insurance shopping trends in Q2 of this year. The average number of drivers per policy continues to grow, as parents add their adult children to their policies or adult children add their retired parents.

Electric Vehicles (EVs) comprise a growing share of new auto insurance policies, even as new vehicle policies drop

As EV sales continue to rise, their proportion of new auto insurance policies does, too. This quarter, Electric (battery/plug-in hybrid/fuel cell electric vehicles) and Hybrid vehicles rose to 1.4 percent of all new policy business, and purchase volumes of Electric/Hybrid vehicles through Q3 of this year have already outpaced those from 2022.

The growing EV trend is taking place despite the overall drop in new policy volumes and shopping linked to new and used vehicle purchases, which are at four-year lows despite the auto industry’s rebound from the 2022 microchip shortage and supply chain crisis.

A Look Ahead

A constant theme from previous LexisNexis Insurance Demand Meters has been the significant rise in claims severities over recent years, and that trend looks like it should continue into 2024. Profitability challenges persist even after the implementation of significant rate increases and strict underwriting restrictions, so much so that insurers’ financial ratings have started to be downgraded. But these same rate increases and strict underwriting restrictions are driving consumers to shop their policies, and that now includes even long-term customers who may have been out of the market for 10 or more years.

“Changing shopping demographics and behaviors are likely to be the norm thanks to tightening consumer budgets and ever-increasing auto insurance premiums,” adds Pichon. “Claims frequencies continue to hold steady, but with severity levels still well above historical averages—largely fueled by high vehicle repair costs—insurers remain focused on making key strategic decisions on whether to implement additional restrictions or conversely look to gain market share as they move toward profitability.”

“As we enter the holiday season, insurance shopping activity traditionally tends to slow,” continues Pichon. “But ever-increasing premiums, combined with tightening consumer budgets, could lead to a change in traditional shopping behaviors.”

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Anthony R. O’Donnell // Anthony O'Donnell is Executive Editor of Insurance Innovation Reporter. For nearly two decades, he has been an observer and commentator on the use of information technology in the insurance industry, following industry trends and writing about the use of IT across all sectors of the insurance industry. He can be reached at AnthODonnell@IIReporter.com or (503) 936-2803.

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