There are many benefits to the increased use of auto technology such as early warning systems for drivers, better visibility, semi-autonomous driving and parking features, and even providing roadside assistance in the event of an accident. However, the rising cost of replacement parts because of this technology is changing how carriers manage and cover these risks. We'll look at how technology affects claims, pricing and even how we drive our cars.
Transcription:
Transcripts are generated using a combination of speech recognition software and human transcribers, and may contain errors. Please check the corresponding audio for the authoritative record.
Patti Harman (00:11):
Good afternoon, and thank you for joining us for this leader session. I'm Patti Harman, editor in chief of Digital Insurance. Today's vehicles are far more complex than the first model T that Henry Ford drove back in 1908 or the Chevy Belaire of the 1950s. Technology has made them safer, more energy efficient, and in some cases semi-autonomous. But these advances come with a higher price tag when there is an accident. Sometimes we'll chat with Kyle Krumlauf, director of industry Analytics at CCC, intelligent solutions about auto claims trends, how technology and other factors are affecting policy pricing and the opportunities that he sees with the industry. Thank you so much for joining us, Kyle.
Kyle Krumlauf (01:03):
Thank you. Patti really enjoyed the opportunity.
Patti Harman (01:07):
So technology is changing so many different aspects of the insurance process and it's having a significant impact in the auto space, I think. Can we start with an overview of what you've been seeing over the last couple of years in terms of auto coverage, pricing claims, frequency claims severity, those sorts of issues?
Kyle Krumlauf (01:29):
Sure, sure. At the highest level, if you want to talk about what's happening with insurance pricing, we generally look at the consumer price index for motor vehicle insurance, and that continues to increase, although it's now at a slower rate than we were seeing back in 20 24, 20 23 especially. But keep in mind that that's a result of insurance carriers taking significant premium increases in both of those years to offset the losses that they had. As well as when we look at claims frequency or claims volumes, obviously on our end we're looking at the volume of claims that come in. That's down slightly year over year, especially on the repairable vehicle side as we've seen a decline in vehicle prices with more vehicles, and we're actually seeing an increase in not only the percentage of vehicles being totaled out as well as the percentage or the volume of valuations that we're running as well on potential total losses. But once again, a lot of these things have to do with convergence of dynamics within the markets that have changed and we're in an environment that many people are not really familiar with. They're not really sure where it's going next.
Patti Harman (02:44):
Very true. Let's talk about some of the major factors that have impacted pricing for insurers and policy holders. That seems to be a constant topic of conversation as I'm talking to folks and vehicles have a lot more technology built into them, which is definitely a good thing. I just bought a car, it has new technology and I'm loving all of that, but I think it can also complicate the repair process. So what are you seeing?
Kyle Krumlauf (03:12):
Yeah, if we especially go back just a couple years, obviously during the inflationary periods in 20 21, 20 22, especially heavier hit vehicles were getting fixed part costs were increasing significantly at that time as well as less vehicles were getting totaled out severity. Really that was the peak of it around Q4 of 2022 as we got into 20 22, 20 23 and then 2024, we've really seen some different dynamics come into play, especially around the cost of labor. And we continue to see the proliferation of diagnostics, and this is going back to with vehicle complexity, mentioning the technology that's in your vehicle. When a modern vehicle is involved in a crash nowadays, generally that vehicle is going to have to have a diagnostic scan done where they basically connect to the computer of the vehicle and identify DTC or diagnostic trouble codes to identify if there are anything wrong with the systems, cameras, sensors, et cetera with the vehicle.
(04:20):
And then they may need to scan the vehicle during the repair process and then after the vehicle is repaired, they have to calibrate those systems to make sure that they are working properly to get you back on the road safely, safely, and then scan it again to make sure that other errors haven't triggered. So there's a lot more to the process now, and once again, there's a lot of parts within a vehicle that maybe there may be limitations around what can actually get repaired in many cases, parts now or disposable unfortunately, and end up getting replaced a lot more and those parts cost a lot more money to replace. So those are some of the factors. Now, I would also be remiss not to mention, I talked about labor rates going up. I think we talked about this a little bit before, is keep in mind that the repair shops that are doing this work, they have to hire skilled technicians to be able to do the work on these vehicles. In many cases, they need to train or have those technicians certified and they need to pay them adequately to retain that talent as well as make sure that they have the right tooling and configurations in their shops to be able to do the work on modern vehicles. So costs across the board continue to increase as a result of the changing complexity of the modern automobile,
Patti Harman (05:39):
And it really has changed significantly. And you talk about the cost of even retooling your local shops because you have hybrid vehicles, you have electric vehicles, you have all of this other technology. There are just so many factors I think that people kind of forget to take into consideration. Is the fact that there are more semi autonomous vehicles on the road having a positive impact on the number of accidents that occur, and is it affecting accident severity yet?
Kyle Krumlauf (06:12):
Yeah, I think there are a couple ways to cut that question. Now, granted levels of autonomy can vary by location and the types of vehicles that people drive there. Obviously if you get into certain areas such as like San Francisco and Waymo and the availability or even Pittsburgh where they have autonomous vehicles there, I mean they've reported really good results with regard to not having any incidents. Although when it does happen, it obviously gets a lot of press. So in certain situations it seems like autonomous vehicles are a good solution and maybe very safe, obviously, however, those are reliant upon the technology working adequately. Now, if you get into the technologies that are in most vehicles, you mentioned the technology that's going to be in your 2022 vehicle.
(07:09):
The way that I look at that is until vehicles are all autonomous, there's going to be some risk involved when it comes to all the vehicles and the various types of vehicles and the technologies they have on the road as well as the driver that is in that vehicle. These systems are not always meant to replace the driver. They're meant to augment the driver. I think about an interview I listened to a year or so ago on Freakonomics. They were talking to a pilot and he was talking about how the auto trim system, so this would be in a plane that actually gave him the ability to have a lot more situational awareness as he was flying. I think about how drivers are treating the ADAS systems in their vehicle, the automatic emergency braking, forward collision warning, the assistance to make sure that they're staying in their lane speed control in some of the other systems that they have. Are people actually being more situationally aware or are they taking opportunities to hop on social media, watch a basketball game or whatever else people are doing while they're driving. And so I think in some cases that actually can create more risk with drivers or them taking more risks or more chances because they expect the vehicle to take care of them. So I think that sword can cut both ways.
Patti Harman (08:30):
Yep. I would agree with that. I was talking to someone, I don't even remember where I was, and he was talking about Waymo and he said, the first time I got in it was like, wow, this is really strange. And he said, now every time I'm in town, that's what I take. He said, I jump in the backseat and I don't even think twice about it because it's just become very natural for him. But there are just so many different types of technology and we've talked about just how that's changed over the years. What types of technology today are basically what we would call standard features. It used to be power locks were, but that's just changed significantly. And then how does this impact repairs following a collision?
Kyle Krumlauf (09:18):
Yeah, well, I mean going back to even anti-lock brakes, right? That was an advancement in safety systems in a vehicle. One of the more modern systems that's in vehicles is going to be your backup camera. That's one of the first advanced technologies and vehicles. And now really starting around 20 16, 20 17, you saw the increase in automatic emergency braking. That was a voluntary commitment by automotive manufacturers, put those in vehicles, and that's in a majority of new vehicles now. And then you get into things like Lane Keep assist Ford Collision warning. You start to get into different degrees of autonomous and what those systems can do. LIDAR systems are now becoming a little bit more common, all kinds of cameras and sensors all along the vehicle. So it is varied. I know in hilde one of their recent reports talked about by 2028 that half of registered vehicles or more will have at least six different types of ADAS systems in them.
(10:25):
So it just is going to keep proliferating throughout the car park and throughout vehicles and operation. And then once again, this is something that, and I think there's two sides to this. One is we talked a little bit about the repair and the diagnostic aspect. The other thing that I'm starting to think a lot about is in the future, what happens when these systems start to break down? The backup camera on our 2014 Ford Fusion went out in the fall, and the question is, are consumers going to have the means to be able to get those things repaired and fixed? And then what are the implications of that when it comes to risk and safety on the roads?
Patti Harman (11:16):
I live in Maryland and they took away the requirement when you go for your driver's license, you don't have to parallel park anymore as part of the test because your car can do that now. And I was like, that is still a skill that you need. And you talk about technology failing with the backup camera, so do you still know to look all around before you back out somewhere? Do you still have that skillset? It's like when your computer goes down or something happens and you have to do stuff manually. It can be a challenge for some people who aren't used to operating quite in that same vein. I think.
Kyle Krumlauf (11:57):
Yeah, I was helping, my son just got his driver's license. In Ohio, you do have to do the parallel parking and whatnot. I want to say, I will just say this for clarity, I did ace it when I did. I haven't done it in 30 years or whatever, but I actually took a post-it note and put it over the camera in the car because I didn't want him to. I wanted to see if he could do it without it. Once again, that's that situational awareness. If you become reliant and looking at a screen, you're missing the world around you.
Patti Harman (12:27):
Exactly. So I was wondering if there are certain factors today that you think are affecting the price of auto insurance because I think the technology is a benefit, but I think it cuts both ways if there's an accident and it has to be repaired.
Kyle Krumlauf (12:46):
Yeah. Well, if we look at what's driving severity and just looking at the repair side of things, the average total cost of repair in 2024 was over $4,700. If you go back to 2008, till about 2012, 13, it was about $2,500 on average. And so part of this is an inflationary condition, but it also has to do with the number of parts, the types of parts, the type of labor that is involved in having vehicles repaired, and so that is going to drive up costs. You also get into the inflation and the value of vehicles. I think from a severity standpoint, we've seen collision severities, for example, flatten out a little bit based on fast tracks data. However, keep in mind the types of vehicles that are being produced. The average new vehicle now is almost 50 $48,600. Somewhere in that ballpark. It was almost $50,000 about two years ago.
(13:52):
And so it's not always just the repair costs, it's also the value of the assets that we're putting on the roads. The average new vehicle's gone up $11,000 in the last five years and think about what's going on also on the property side with the increase of value of assets. And then you get into some of the other factors that I think would impact insurance. How many people actually are purchasing insurance today? We know that there's been an increase over the last couple of years of uninsured motorists. Part of that obviously can go back to the cost of insurance. You get people making some different decisions about what elections they're going to make around deductibles, full coverage, especially with an aging car park. And then you get into whether or not people are filing claims, which I think can also skew some of the data with this. And then you may only be left with some of the higher severity losses, which could also be driving up costs. I think the other part of this too, which obviously I'm on the auto physical damage side of the house, I'd be remiss not to mention the increase of severity from a bodily injury standpoint, casualty costs or outpacing from a loss standpoint, auto physical damage at this point. So that's also driving up not only the cost of insurance, but a lot of states are revisiting what their minimum limits are at this point.
Patti Harman (15:18):
Yeah, there are just so many different factors that come into play there. We seen a huge increase in the popularity of electric vehicles. Is that affecting the price of insurance coverage in the marketplace? And do the coverage and risk for these vehicles differ from gasoline powered vehicles in any way?
Kyle Krumlauf (15:44):
Yeah, I think there are a couple ways to look at that. Patti. I would start with the cost of an electric vehicle. Those are generally somewhere in the range of about six to $7,000 on average more than the average new vehicle is. So that's the first thing I would say. They're a little bit more expensive right off the bat. Then you get into the actual repair of those vehicles. In general. They are more expensive to repair at this point than a hybrid vehicle or a combustion engine vehicle. However, hybrid vehicles are catching up very quickly when it comes to the cost of repair for hybrids, but also keep in mind that the types of vehicles being produced, I say this to clients all the time, A hybrid is not a Prius anymore. A hybrid is going to be a crossover utility vehicle more often than not now. So once again, then you get into larger body panels and then you get into the complexity of the technology in these vehicles and who can work on those. The parts. I think another interesting part of this too is when you get into the newer models, which generally are tending to be more on the hybrid and electric vehicle side, are parts available to replace those that were damaged? That can also be a challenge in the repair process as well,
Patti Harman (17:07):
As much as the auto insurance process becomes automated. Are you finding that policy holders are more or less likely to shop around for coverage? I know that there are a lot of different programs that can help them with pricing and that sort of thing, and is this affecting brand loyalty? The carriers,
Kyle Krumlauf (17:30):
And given my purview, I can only tell you really what I've read and kind of observed anecdotally. First and foremost, the stats that are out there definitely show that people are shopping more frequently, and a lot of that has to do with the fact that they're trying to find the best price. As I thought a little bit about this question though, I stepped back and thought, well, keep in mind also that we are relying heavily on digital solutions to buy and sell insurance, and are people actually getting the right advisement on what coverages they need, what the policy actually covers? Because it's one thing to buy a policy, it's another thing to make sure that you have what you want for when and if an occurrence, a loss of some sort happens. And I think that's getting undervalued it seems like to me. And that's really where the brand comes into play. Like it's one thing to buy a policy, but when you have an event that happens, a crash or otherwise, are you getting the service and the empathy and attention that you require from your carrier? And I think that's where the rubber hits the road, no pun
Patti Harman (18:55):
Intended. I agree. Yep. And insurance is still very much a relationship driven business, and it starts at the beginning when you purchase the policy. And I think a lot of times with the online options, you may not realize what you don't know or you don't know the questions to ask, and if there have been changes in your lifestyle or where you live or whatever it is, all of those factors come into play and affect the pricing. And sometimes you may not be aware of that one way or the other. Are there services that policyholders want just beyond a good price for their auto insurance? We were talking about the importance of when there's a claim or something like that.
Kyle Krumlauf (19:38):
Well, one of the things that comes up a lot and has come up over the last, especially over the last year or two, is around OEM parts. And this is something that carriers can do to differentiate. And once again, I think this is where an agent can come into play, which is making sure if, should a customer or client have a loss, is this something where you're going to want to replace those parts, especially on an older vehicle with OEM parts, or do you accept other options? Should a crash occur? That seems to be very important and in many cases to consumers, what parts are actually put on their vehicles. Also, when I think about, when we talk about technology, digital experiences, things of that nature, as many companies have gone through the process of modernizing the technology, going through the digitalization process, being able to have a human in the loop at many points, technology isn't always about replacing people. It's about augmenting them. And so some consumers are very comfortable doing everything digital. Some at some point may want to drop out of that and actually talk to a human being. So having integrated solutions across the board from soup to nuts, that can provide a lot of value and flexibility for consumers depending on how they want to engage with
Patti Harman (21:06):
You. That's very true, and that's an important aspect of the customer experience. I've been reading, and we even did our own in-house study, and a lot of carriers are spending a lot, they're investing a lot in technology, but one of the things that they're trying to make sure as part of that investment is that the customer experience is still excellent for their customers, because if it's not, then it's just way too easy, I think, for them to go somewhere else.
Kyle Krumlauf (21:38):
Yeah, it makes you really appreciate all the different touch points that exist between whether it's shopping and buying a policy, binding the policy, having an endorsement renewal, if there's a claim, if retaining that customer or them moving to another carrier. I mean, there are all these different moments. We talk about moments of truth, all these different things can happen. Along that timeline,
Patti Harman (22:06):
How do you think carriers are remaining competitive then in this constantly changing landscape? You talked about the use of OEM parks. Are there other things that they're doing to still remain competitive as well?
Kyle Krumlauf (22:21):
I think there's a couple of things. One is when you get onto the pricing side, obviously that really comes down to segmentation and knowing what you're good at writing and what you're able to actually service should there be a loss. But then I think the other part of that too gets into the brand and providing value to consumers should something happen and making sure they understand the value of the protection that is being provided. So unfortunately for everybody, costs have gone up significantly over the last couple of years, and it seems like that's kind of almost unavoidable. And so it really comes down to pairing your needs with the right company at this time,
Patti Harman (23:07):
With everything being digitized and you can purchase your insurance online, you can file your claim online. Are policy holders becoming more comfortable with this digitized process or the automated insurance process at this point?
Kyle Krumlauf (23:24):
Yeah, and I would say it's a mixed bag. Younger consumers, digital natives, absolutely, they expect that. They expect a digital experience. I think when you get into maybe some older clientele, you may have more of a mixed experience, but then once, like I mentioned earlier, that ability to come in and out and have a human in the loop or be able to get out of digital and into more of an analog experience, then you should have that flexibility given all the investments that are being made in the technology and making that a seamless experience. That's really what it comes down to, because if it becomes painful to the clients, and the thing that's important about this is they are not comparing you to another insurance company. They are comparing you to Amazon and other entities that they're engaging with.
Patti Harman (24:23):
Yes, I think those other companies have really changed customer expectations. You expect to know exactly what's going on with your claim or where it is or be able to ask questions from a chat bot or whatever. It just really changed that,
Kyle Krumlauf (24:39):
Where's my pizza? Yeah, exactly
Patti Harman (24:41):
Right. Exactly. What factors do you think will have the biggest impact on auto insurance in the next 12 to 18 months?
Kyle Krumlauf (24:51):
Well, I've got a couple of different purviews on that. First I'd like to mention CCC did a moments of truth study last year, and we talked to about 2,400 people who had a collision claim. And the things that stood out to me with that, and a lot of this doesn't come down to technology. A lot of it comes down to, once again, that experience and being able to, whether it's use technology, but augment it with the human elements, things like communication and transparency were most important. The quality of repairs, having empathy. Once again, digital solutions are important as part of that process, but it's holistic in nature. And then also the timing of being able to get a vehicle repaired and back within the time, the expectation that was set becomes very important. Obviously, we're living in a very kind of turbulent time, and there's a lot of uncertainty with regard to the markets, the market that we work within now. But the things that I think are really important, one is the continued proliferation of technology and vehicles that is not going to decelerate anytime soon. I think we're seeing many insurance carriers return to profitability, so that's going to slow the increases in rates that we've been seeing, which is, once again, a good sign. It doesn't mean that rates are going to go down, but it means they're going to just increase at a slower rate. But I think there still remain a lot of challenges and a lot of uncertainty. So it just becomes a matter of, for carriers especially, I think now it's kind of like managing efficiency, cost management, et cetera, in preparation for whatever comes next.
Patti Harman (26:43):
Is there anything that concerns you about some of the trends that you've observed in the insurance industry or the auto insurance industry, I should say?
Kyle Krumlauf (26:52):
Well, the one thing that I've been watching coming into 2025 is return to office policies and how that's going to affect miles driven congestion, especially during rush hour. I think that's interesting. We're already seeing miles driven up in December and January based on Department of Transportation data, but I also am curious what that does to vehicle demand for new and used vehicles. That's been a really interesting area, and we talk about some of the economic challenges within the industries we serve, whether it's new vehicle prices, finance rates, there are some underlying challenges there that I think are interesting, but also as more people are going back into offices, will they need reliable transportation. We were talking obviously when we were meeting before this about you getting the new vehicle. The other thing that I think is interesting as people get into modern vehicles, you were driving a 2012 vehicle before you get into a 2022. It's like this Rip Van Winkle effect where it's totally different than what you had. And it's almost like drivers have to be retrained on how to use used vehicles because they're so different technologically. There was a study done that was talking about how people were going back to their dealerships after receiving, after purchasing the new vehicle for follow-up orientations on how to use all the technology.
(28:22):
That's really interesting to me and how we almost have to get retrained on how to use the technology because of the computer on wheels. It's not just an analog machine anymore. It is a highly digitized, sophisticated animal.
Patti Harman (28:40):
It is extremely, and actually, my dealership offered that, and as I was out driving earlier today, I thought, oh, I have to take advantage of that because there are alerts that I'm not aware of. I don't, unless you're going to sit and read your owner's manual from start to finish, you're just not going to understand what all of that is. And I started keeping a list. I need to know this. I need to know that. Oh, and it's astounding to me how much technology there is. And when I bought my car, my thought was the next vehicle that I buy will probably be fully autonomous, and then that will be a totally different way to travel too. Well, I expect to keep my car for a while, but that's the direction that we're heading. Just like young children now will not have to learn to drive the way that the rest of us did, I don't think.
Kyle Krumlauf (29:36):
Yeah. Well, I definitely think that's true, where you're learning to drive in a way that is different than your parents would've learned regardless of the level of autonomous or any degree below that. Absolutely.
Patti Harman (29:53):
So what excites you about the technology adoption that's taking place in the auto space now? Is there anything you've seen that's like, that is just so cool, or I'll give you an example.
Kyle Krumlauf (30:21):
Blown my hair back. Let's put it that way. Okay.
Patti Harman (30:24):
Well, okay. Well, maybe it's not that, and I won't say that this even excites me, but the low air sensor on my car went down and I was astounded. I got a text message and I got an email saying, we've noticed that your sensor is on. You might want to check your tires, which to me is a great safety feature. So I think there are some really cool safety features that have been built in to some of the newer cars
Kyle Krumlauf (30:54):
Now that I like, because in a lot of cases, people don't always know how to maintain their vehicle. And so having for the vehicle to be intelligent in ways to tell you what it needs, what you may want to be aware of, I think that is incredible for, but once again, I think how people interact with that technology is probably the most important thing because it's very easy to turn off alerts, switch off some of the features in the vehicle, and then you're maybe increasing risk, but really missing out on the benefits that the technology has for you as a driver.
Patti Harman (31:38):
Yep, that's true. So we've covered a lot over the last half hour. Is there anything that I haven't asked you about auto insurance that you think our audience should know about?
Kyle Krumlauf (31:52):
Yeah,
Patti Harman (31:53):
It's probably a loaded question, but
Kyle Krumlauf (31:57):
Yeah, it's a fascinating area and it's just ripe with change, and it's going to be fascinating to see how, once again, not only how manufacturers and consumers adapt, but also how carriers adapt to the changes within the vehicles and how, once again, how does that translate to a lot of the questions you had about what does this mean from a price standpoint? How do they adapt and understand the interaction between the technology, the advancement of the technology, the interaction with the driver, and use that to more adequately price, price for risk.
Patti Harman (32:38):
So great. Well, thank you so much for joining us today, Kyle, to discuss what's going on in the auto insurance market. Thank you to our audience for joining us as well. We hope you'll come back for next month's leader session when we talk about the Internet of things and AI and how they're mitigating some common risks. Enjoy the rest of your afternoon.
