What's driving auto insurance switching?

Firms still have a chance to seize market share

What's driving auto insurance switching?

Motor & Fleet

By Kenneth Araullo

The LexisNexis Insurance Demand Meter revealed a “hot” market in Q4 2023, with a surge in rate increases, improved combined ratios, and heightened consumer shopping activity, setting the stage for insurers in 2024.

This uptick in shopping activity diverges from the typical slowdown observed in the fourth quarter, with robust demand for new auto insurance policies. However, since the first quarter of 2022, retention levels have fallen by a significant three percentage points, as consumers actively seek better deals in the market.

For the sixth consecutive quarter, the growth in new policies surpassed the growth in shopper activity, indicating that consumers are increasingly changing their insurance carriers when they shop. Unwilling to accept higher rates, 41% of insured households looked for new auto insurance at least once in 2023.

The final quarter saw a rebound in shopper growth from a -1.2% decrease in Q3 to a 4.7% increase in Q4, while the growth in new policies climbed from 3.9% to 7.0% on a quarterly year-over-year basis. The year 2023 began with a spike in shopping and new business volumes, fueled by rate increases.

What are the challenges facing auto insurance?

In its report, LexisNexis explained that challenges such as rising claims costs and inflated vehicle repair expenses tempered profitability gains. Despite a brief decline in shopping activity in the third quarter due to scaled-back customer acquisition efforts, Q4 witnessed a resurgence, driven by higher rates and intensified market efforts.

Adam Pichon, senior vice president, US auto and claims at LexisNexis Risk Solutions, emphasized the importance of monitoring shopping activity on a state-by-state basis, especially in states like Texas, which has seen improvements in profitability and a decrease in rate increases.

“While we can’t predict the shopping trajectory for states still looking to achieve rate adequacy, we will watch closely to determine whether Texas can serve as a bellwether for the rest of the country,” Pichon said.

The direct distribution channel significantly contributed to the Q4 growth, marking a departure from the previous quarter’s reliance on independent agents. This shift resulted in a 27% increase in direct distribution channel growth, compensating for the downturn in agent-based channels. The Western and Midwestern regions led the shopping growth, with states like Hawaii, West Virginia, Iowa, South Dakota, and Utah seeing substantial increases.

As 2024 progresses, insurers are presented with an opportunity to capture market share, especially through direct channels where strategic marketing and rate adjustments are encouraging more consumer shopping.

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