The Auto Insurance Affordability Crisis

Strategies for managing UM/UIM claims

The best way to manage the insurance affordability crisis is with a multi-prong approach focused directly on the issue of uninsured motorist (UM)/underinsured motorist (UIM) claims. The approach includes several strategies: quantifying insurance affordability, enhancing underwriting models, implementing innovative claim handling strategies and regulatory lobbying efforts.

Quantify insurance affordability

A key issue for UM/UIM is affordability. A simple and intuitive measurement of affordability is comparing the average price of a personal auto policy to the average wage in the region. It’s reflected in the heat map below. Command of data and analytics would offer other ways of considering affordability.

Just as driving history is factored into an auto insurance policy, affordability should be another consideration. Ultimately, rates must reflect expected loss costs and not tailored to willingness or ability to pay. But the insurer can use affordability metrics to intelligently decide whether to offer coverage at all as well as what deductibles/limits are suitable for a given customer.

Enhanced underwriting models

Underwriting models provide a score indicating the customer’s propensity for being involved in UM/UIM claim. The score is based on various factors. But what if these underwriting models could be enhanced with more finely tuned predictive analytics? Your insurance company might hit on different value propositions for more defined customers segments.

Does a particular applicant pose a greater risk of being a UM/UIM claimant? Is your organization able to answer this question? If so, how does this influence your underwriting?

Innovate claims handling strategies

It’s not often you can gain inspiration from ambulance chasers. However, by monitoring and analyzing traffic incident reports, social media alerts, and police records, insurers can identify policyholders involved in accidents more swiftly than traditional claims reporting.

This early detection system could be instrumental in managing UM/UIM claims more effectively. For example, instead of a policyholder reporting the incident, the insurer reaches out to the policyholder to start the claims process like documenting the incident and securing witness statements. Being proactive in this critical period can have a crucial impact on the trajectory of the claim. Ideally, carriers can negotiate a settlement before external legal become involved. At a minimum, proactive carriers can establish a level of ground truth around the facts of the claim which can mitigate a UM/UIM legal spiral.

Develop winning public policies

There is only so much that can be done internally to manage runaway UM/UIM claims. Accomplishing more requires an external focus—lobbying lawmakers and participating in public debates, ensuring industry viewpoints are heard.

Low hanging fruit includes lobbying, tort reform, aftermarket parts, and strengthening the safety net.

Lobbying

Insurance companies have a vital voice to contribute to ensure opinions, judgments and regulations reflect the interests of auto insurers. That said, it’s tempting to lobby for higher minimum limits with the theory that it would lead to fewer UIM claims. However, doing so would increase pressure on uninsured motorists. Take positions that serve desired outcomes.

Tort reform

Advocating for tort reform can help streamline the claims process, reduce legal expenses, and ultimately lower costs for policyholders. Measures such as limiting punitive damages or establishing clearer guidelines for pain and suffering awards can mitigate the inflationary pressures on premiums. Tort reform would address this key driver of high insurance costs.

Approval to use aftermarket parts

Just as generic drugs offered consumers tremendous cost savings, a similar opportunity exists with approval to use aftermarket parts for auto repairs. Using certified aftermarket parts could significantly reduce repair costs without compromising safety or performance. Regulations will need to change, along with consumer sentiment, to gain approval for aftermarket parts.

Strengthening the safety net

High-risk drivers lack access to affordable insurance, making them more likely to turn to UM/UIM. It calls for a collaborative effort between insurers, regulators, and policymakers to devise solutions that reflect the realities of today’s economic and social landscape. Strengthening the safety net requires adequate funding and innovate approaches to risk assessment and coverage pricing.

Addressing the crisis of insurance affordability

The crisis of insurance affordability, underscored by the increasing frequency of UM/UIM claims, is a major challenge for auto insurers. To navigate the rising tide of claims, insurers must adopt a comprehensive approach that includes quantifying insurance affordability, enhancing underwriting models, implementing innovative claim handling strategies, and sharping a public policy program that supports the interests of the insurance company. An all-out push on these fronts would help lower the rate of UM/UIM claims.