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5 Pressures Facing Auto Insurance Companies (+ How to Deal with Them)

By Mike Piehl 03.26.21 5 Reasons Auto Insurers Need Digital Transformation Now: Male driver hand holding on steering wheel using smartphone for GPS navigation.
Reading time: 5 minutes

The cost of claims across insurance sectors have been dropping over the past few years, with automation and technology reducing the cost of claims as much as 30%.

At the same time though, there’s a host of pressures on auto insurance companies to change their premium pricing model to stay competitive with the market. 

What’s happening now is that the cost is dropping faster than premiums — meaning that the auto companies that take advantage of the benefits of digital transformation stand to increase profits. In fact, McKinsey estimates that a typical auto insurer could more than double profitability over the next five years through the power of digital transformation.

5 Reasons Auto Insurers Need Digital Transformation

These five external and internal pressures make digital transformation in auto insurance a necessary investment to take advantage of the profitability advantage:

1. Addressing legal challenges

A group of class action lawsuits are moving forward in Nevada against 10 major auto insurance companies after they offered discounts on premiums for customers driving less due to working from home during the COVID-19 pandemic. 

Even though the insurance companies offered rebates — something they didn’t have to do, legally — the lawsuit states that discounts didn’t provide “any meaningful relief that actually reflects the reduction in cars on the road and reduced driving during the pandemic.”

While the results of the lawsuits remain to be seen, the point is: companies need to be able to change their business model quickly, taking into account multiple factors, such as number of cars on the road, crashes, and current events.

2. Adjusting policies to changing driving habits

These legal pressures add an official tone to the ongoing shift in consumer habits — a dramatic decline in commuting and car use that started during the pandemic, but may be a long-lasting change.

In April 2020, Americans drove 64% fewer miles, and KPMG predicts as much as a 10% reduction in the annual 3 trillion miles driven by Americans. Vehicle ownership may even decline to less than two cars per household.

And cars that are on the road will be safer. 20% of vehicles globally come with additional safety systems like collision avoidance, blind-spot assist, and adaptive cruise control. While self-driving cars are a few years off still, McKinsey predicts that auto insurance premiums could decline by as much as 25% by 2035 due to safety systems and smart vehicles.

These changes means consumers are expecting auto policies that leverage a usage-based pricing model, something traditional insurance IT can’t typically support. In addition to pulling premiums down to stay competitive, auto insurers will need to think about how to measure and implement a mile-by-mile pricing strategy.

3. Delivering a best-in-class customer experience

What cranks up the pressure for auto insurers is that consumers expect this drop.

With so many players on the market today, if you’re not offering a seamless digital experience, then your customers won’t want to do business with you. Not only is the cost to service claims much higher, you’re putting your customers through an outdated, clunky experience during a time when they’re probably a little stressed. It’s not like you submit an auto insurance claim when your car is running perfectly.

Once you get rid of all of the paper and red tape, your quote time moves to real-time quoting.

Frequently the effort to produce a 360-degree view of policyholders is stymied by siloed data and systems that aren’t connected. To provide a seamless and efficient policyholder experience, insurance systems need to talk to each other. Systems must be able to store, share, and make use of the same data. And that data needs to flow from the initial collection of information, through underwriting, to policy administration, to claims processing — which reduces cost, complexity, and opportunity for errors. 

4. Closing the talent gap

What makes this even more difficult? Finding and onboarding agents that can guide customers through the process. In the U.S., only 2% of college graduates plan to work in insurance. This trend means it is more important than ever for insurers to provide agents an efficient onboarding and engagement experience that retains them long term. 

With COVID-19 changing the way we work, auto insurers have the potential to increase their talent pool on a national level, rather than confine themselves to specific metro areas. That may help fill the talent shortage we’re seeing across the insurance sector.

5. An increasingly competitive, commoditized market 

Auto insurance faces a different kind of competitive pressure than other parts of the insurance industry today. Other types of insurance companies aren’t offering rebates — but once one major insurer did it, so went the rest. Farmers Insurance reduced premiums for the month of April 2020 by 25%, while GEICO offered a 15% credit. 

Auto insurers increasingly have to struggle to retain customers. With such a strong competitive market, companies have to increasingly deliver lower prices and better customer experiences — all with a lower cost to the business.

How? Digital transformation.

How auto insurers can use digital transformation to meet these pressures head on

Auto insurance policies generally take into account four kinds of data: the driver, driving history, the type of vehicle, and location.

For many companies, that data lives in different databases than the pricing and actuarial tables that drive insurance offerings. 

Let’s take an example from Progressive’s connected car insurance program. Their Snapshot program offers customers a discount that rewards good behavior by using a plug-in device or mobile app, personalizing insurance rates based on how a customer drives.

Not just taking into account history like speeding tickets or accidents, but for example — how many times they slam on the brakes in a given week, or whether or not they run a red light or stop sign. That’s changing with connected car insurance that uses IoT-based technology to create usage-based insurance models.

While it may be branded as a “better driving” campaign, what this really does for Progressive is give them mountains of customer data to work with so they can adjust their risk tables for every customer. And it’s a better experience, too. Customers love the idea of discounts for good behavior.

But for this to work requires a seamless back-end technology (including artificial intelligence, predictive analytics, and machine learning) that brings together all of this customer data with pricing and changes it month-to-month based on performance. Insurance digitization delivers a much higher profit margin than traditional models of insurance and positions the brand as a force for societal good (better drivers overall) and a benefit for the customer (an individualized plan, based on my great record).

Salesforce helps auto insurers do it all

It’s time to update your pricing capabilities with digital transformation.

Salesforce centralizes all of the different data points so you can price insurance products and services more quickly and easily, giving you a 360-degree-view of your drivers. Salesforce and Vlocity capabilities allow you to combine prior sales and policy performance to maximize renewal cadence and pricing. Additionally, you can enable your product administrators to manage coverages, define underwriting criteria, and implement robust rating algorithms so you can quickly innovate with new product offerings. 

Whether that’s using an IoT approach to change your risk (like our brakes example) or just pulling together multiple insurance software that don’t currently talk to one another — bringing in Salesforce can revolutionize how you do business so you can meet the legal, customer, staffing, and competitor pressures facing auto insurers today.

As a consulting company with real experience in the insurance industry and expertise in Salesforce, Silverline is uniquely positioned to deliver digital industry solutions. Our experts combine engagement layer capabilities like marketing automation, sales automation, and omni-channel service, with core Insurance capabilities from Vlocity like Quoting/Illustrations, Policy Print, Product Management, Underwriting, Commissions, Post Issue Transactions, Claims and Billing to achieve a complete business solution.

See how Silverline can help your auto insurance company keep up with the pressures of today’s market. 

Ready to see real results? We can help.

Get in Touch

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