Some trends in the U.S auto insurance market include new regulations by the Department of Insurance and Financial Institutions (DIFI) that will increase the cost of policies and new players disruptors that are competing in new ways. Below is a description of the trends.
1. New Regulations that Increase Auto Insurance Premiums
- In June 2020, a new law was passed in Arizona that would see an increase in the minimum amount of auto insurance premiums required by the state. This will, in turn, increase the cost of auto insurance in Arizona.
- The new law went into effect on July 1, 2020, and any new policies bought on or after July 1 were subject to the higher limits. Drivers in Arizona covered by the policies with lower limits saw an automatic increase in their premiums when their policy renewed on July 1.
- Before the limits were increased, the lower limits were commonly referred to as 15/30/10, and they included:
- After the limits were increased, the new minimum limits will be:
- According to insurance experts, the increased limits mean that drivers in Arizona will have to pay 40% more in insurance premiums.
- The increase in minimum limits was necessitated by the rising costs of medical care, automotive repairs, and litigation and also the need to offer adequate protection to drivers in Arizona.
2. Usage-Based Insurance
- Arizona is among the first states in the US where new players are disrupting the auto insurance industries by coming up with newer and innovative ways to rethink how the industry approaches risk pricing.
- One such company is called Just Auto Insurance, and it’s fronting a new insurance pricing method called Usage-Based Insurance. The company started operating in Arizona in March, and it had grown to over 100 active policies by August 2020.
- According to the founders of the company, they started the company because they believe that “it’s fair, moral and right to be charged for insurance according to how safe or risky a driver you are, and not if you have a college degree or live in an expensive zip code.”
- The founders of Just Auto studied the technology used to determine premiums in the auto insurance industry in Arizona and other states. They concluded that the technology is simplistic and does not do a good enough job at risk pricing.
- As per the founders, Murray Macdonald and Robert Smithson, “drivers should pay for auto insurance not only based on their safe driving record, but a combination of how much they drive and the road conditions, time of day, weather where the trip starts and ends.”
- Drivers load their account with as little as $30, and they get an introductory price of 10 cents a mile. They get the option to top up their account if it gets depleted.
- At the end of the month, drivers receive a new rate from Just Auto Insurance, reflecting their demographic information and other factors such as driving conditions and their habits.
- Drivers exhibiting safe driving habits may get reduced rates to up to 4 cents a mile while drunk drivers in the middle of the night may see higher rates.
- In the US, around 13% of drivers do not have auto insurance, and Just Auto believes that the usage-based insurance model will significantly lower those figures.