Uber and Usage-Based Insurance: The New Face of Personal Auto

What’s driving rate upticks for private passenger auto? And can independent agents expect it to last?

In light of advancements in vehicle engineering and a variety of new automotive behavior trends, maybe not.

Recent rate increases for private passenger auto have remained “in the low single-digit range” for many carriers, according to Ray Crisci, senior vice president and product manager for Chubb Auto & Excess Liability.

“It seems like carriers are getting closer to rate adequacy now,” Crisci explains. “So we’re seeing the frequency of changes decline, and the percentage increases tend to be still pretty small, maybe in the 1-3% range.”

Crisci attributes the trend to an increase in severity for collision losses. A few factors are responsible: collision avoidance technologies like autonomous braking and adaptive cruise control; higher demand for green-friendly vehicle construction, using lighter-weight materials like aluminum and plastic composites; and advanced visibility features like LED daytime running lights.

All have “made accidents more expensive to repair,” Crisci says. “There have been some modest benefits in terms of reduced accident frequency, and I would expect there would be an increasing benefit to accident frequency over time as more of the fleet becomes equipped with these kinds of technologies. But these specialized requirements drive up the cost of repairs.”

Tech sophistication isn’t the only trend that will transform private passenger auto insurance in upcoming years—social behavior, particularly among young people, will do the same. Hot-button issues include usage-based auto insurance, transportation network companies and peer car-sharing services.

Usage-based auto insurance—the brainchild of Progressive that charges auto rates based on how customers drive rather than traditional measures like gender, marital status and age—is “in demand,” says Dave Pratt, general manager of usage-based insurance at Progressive.

How the Snapshot program works: Progressive mails a device to the customer that plugs into a diagnostic port in the car and includes cell phone technology, recording information about each driving trip and sending the information back to a Progressive server at the end of the trip. “The customer doesn’t have to do anything,” Pratt explains. “All they have to do is plug the thing in the car and then forget it.”

What does the device track? Pratt says driving frequency, time and how often the customer hits the brakes hard—“we’ve found that’s a really good predictor for people that are likely to have an accident,” he says. After 30 days, the customer receives an initial discount for good driving, and at the end of a six-month policy term, Progressive applies the final discount to the policy and requests the customer send the device back. Although a few specific makes and models might not work well with the Snapshot program, most vehicles made in 1996 or later are a match.

“I think you’ll see dramatic growth in this area,” Pratt says, noting that State Farm has already started advertising its own version of Snapshot. “It’s just so much fairer. If you’re a young guy paying a lot for insurance, you can distinguish yourself from all the other young guys by just showing you’re a good driver.”

But other personal auto trends might not be so positive. While transportation network companies like Uber—which essentially allow any person with a car to become a taxi—have been incredibly popular thanks to their low fees, the resulting coverage gaps are troubling, Crisci says.

“What they originally tried to do was let personal insurance pick up the coverage for it, but personal insurance is not really designed for that—this is really more of a commercial exposure,” he explains. “So a lot of states are passing laws saying Uber and these types of transportation network companies have to provide primary coverage and they have to provide at least $1 million worth of coverage.”

While that might seem like plenty, it might not be if “you’re carrying several people in your car and they get very seriously hurt,” Crisci says. “$1 million may not be nearly enough to compensate them for their injuries, in which case if your personal policy doesn’t cover it—which most don’t—you could personally be on the hook for thousands or millions of dollars.”

Peer-to-peer car-sharing services like Turo, in which drivers rent their own cars out to strangers, present similar concerns. “You’re potentially exposing yourself to serious liability,” Crisci says. “The car-sharing company will provide some primary liability coverage typically, but once that’s exhausted, you could again end up being on the hook for millions of dollars if the person who rented your car has a serious accident.”

For tips on how to navigate the new challenges disrupting the private passenger auto market, keep an eye on IAmagazine.com and upcoming issues of the Markets Pulse e-newsletter.

Jacquelyn Connelly is IA senior editor.