What auto carriers are doing isn’t working. Except for Progressive.
“Rate hikes not bringing profitability to auto insurers” – Fisk analyzed first half financial results for the top ten carriers and despite massive rate increases carrier combined ratios increased. Even Geico – who bucked the trend with a significant loss ratio reduction only did so by shrinking rapidly.
Apparently some time in the past major carriers made a very bad assumption about the nature of auto insurance risk in the digital age: they assumed that the advent of high-speed digital systems, ‘prefill data’ and ‘AI/Machine Learning’ models had turned auto insurance risks into a manageable commodity. They essentially assumed that personal lines carriers risks were more like Amazon and Walmart’s – were so diversified that they didn’t need to invest much effort in eliminating the bad ones.
But unlike Walmart where a $1000 dollar credit card fraud costs $1000, a $1000 auto policy comes risk of a loss that could be a hundred times greater. And these larger losses are highly correlated with information mistakes, deceptive data and fraud. The approach needed to identify and eliminating these excess risks is the antithesis of ‘commodity’ thinking. And is the essential mindset and strategy needed for carriers to get off the current very unprofitable rate cycle roller coaster.