Supply-Chain Problems May Push Up Auto Insurance Rates

The auto insurance industry is marching into 2022 facing a combination of factors ranging from supply chain-driven cost increases to technological revolutions. But at least for now, auto insurance rates appear to be only modestly affected.

Supply Chain Woes

The biggest single factor currently affecting the auto industry also has the potential to eventually push up auto insurance rates: supply-chain disruptions.

Much ink has been spilled over the critical shortage of semiconductors. Without those high-tech chips, assembly lines have been snarled. And with limited stock coming off the assembly line, prices for the few new vehicles available have been going up.

But semiconductors aren’t the only missing piece to the auto-assembly puzzle. Nearly every component, from filters to seat leather, has either faced supply issues or price pressures, due largely to factories struggling to resume full capacity following COVID shutdowns.

And the tractor-trailer blockade of parts coming out of Canada didn’t help matters. 

The problem from an insurance perspective is that if an insured vehicle is destroyed in a crash, the insurer now has to pay more to replace it (not to mention simply repair it.) And with more money potentially going out in claims, premiums eventually will have to follow.

Pay As You Drive

A snarled supply chain isn’t the only narrative in the auto insurance industry this year, though.

Another driving factor is so-called usage-based insurance. These policies accounted for $19.6 billion in premiums in 2021 in the U.S. and are expected to grow on a 25% annual rate for a few years.

These policies use some sort of tracking technology to match insurance premiums to driving habits. People who speed more pay more. People who drive safely pay less.

To gather these datapoints, insurers either rely on devices that plug into the vehicle’s diagnostic port, or mobile apps installed on the driver’s phone, and increasingly, data gathered directly from the vehicle’s onboard telematics package built into the onboard computer.

Usage-based policies are always voluntary and are not available in every state.

According to research published by Nationwide, 62% of drivers said they were concerned about the information the telematics devices capture. But that concern didn’t stifle demand. That same survey showed 65% of drivers said they would allow telematics to monitor their driving if it meant a discount.

Right now, the major factor holding back usage-based insurance seems to be a knowledge gap, with only 27% of consumers telling Nationwide they even know what these policies are, and 40% of agents saying they don’t feel knowledgeable enough to counsel clients on them.

But as more drivers discover they potentially could save money with these devices, that knowledge gap is sure to close.

Rideshare

As more people turn to rideshare and other gig work to earn a living or supplement their pay, many are surprised to learn their personal auto insurance doesn’t cover them when they are on the clock, because nearly every private policy specifically excludes commercial use.

Many of the gig employers offer some amount of coverage while the workers are on the clock – actively picking up riders, or en route to a delivery, for example. But if they are logged in while not actively billing any work, they may be facing a coverage gap.

Thankfully, private insurers do offer endorsements to extend personal coverage onto some commercial activity, but gig workers need to make sure they discuss their work use of their vehicles with their agent to ensure they get the proper coverage.

Self-Driving

Autonomous automotive tech is moving forward at a breakneck pace, but state insurance regulators aren’t all moving quite so fast.

Some states have written laws to allow for driverless vehicles, but they require the owner to buy extremely large insurance policies – in some cases more than double the liability limits required for human drivers. Others set the minimum liability coverages in the millions.

The biggest insurance question regarding autonomous tech is: In a wreck, who is liable? Since the driver wasn’t in control, could they meet the legal threshold for “fault?” Would the manufacturer be at fault? The programmer?

There is still a little time to work out the legal framework.

The hope is that since the vast majority of accidents are chalked up to human error, machines wouldn’t have quite as many wrecks, but in the meantime, every major accident or fatality involving an autonomous vehicle grabs the headlines.

iQ writer Michael Giusti_0

From supply-chain snarls to larger roles played by technology, 2022 promises to be an eventful year for auto insurers. But at least in the first quarter, it has been quiet on the rate front.

Most rate increases filed with state regulators so far this year have been in the single digits, but industry-watchers are holding their breath to see how all these changes will impact rates over the longer term. At least one state, Texas, already has announced plans to hike rates in the near term.

Michael Giusti (pictured, above left) is senior writer and analyst for InsuranceQuotes.com (https://www.insurancequotes.com/).