The personal auto insurance industry continued to experience challenges in 2024. With a sustained rise in claims frequency and severity, and inflationary loss costs caused by increasing repair costs and medical expenses, the personal auto insurance market has been driving on a bumpy road for several years.

“Challenges over the past few years have included economic and environmental trends, such as labor shortages and increasing repair costs, as well as increasingly severe accidents and escalating medical expenses," says Karen Eckert, senior vice president, personal insurance agent distribution, Travelers. “In addition, as vehicles become more technologically advanced, they become more costly to repair."

With more than 20% of vehicles involved in collisions now considered total write-offs, insurers are losing money, despite passing along price increases to their customers, according to J.D. Power. The impact of these challenges has been felt nationally by both carriers and consumers.

“Economic challenges, such as post-pandemic inflation, have strained both insurers and consumers, leading to depleted savings and increased credit usage," says Casey Kempton, president, property & casualty personal lines, Nationwide. “Rising insurance costs are causing some consumers to reduce their coverage or suspend their policies temporarily. Additionally, the industry is grappling with an increase in severe weather events. While this impacts property lines more directly, it strains carrier resources and pressures auto results."

“The No. 1 thing that has impacted everybody over the last couple of years has been the impact of COVID-19," says Michael Grove, senior vice president, head of U.S. retail markets auto product state management, Liberty Mutual Insurance. “The way it has impacted the industry with inflationary pressures has definitely been a big overarching negative."

As a result of the ongoing challenges, AM Best gave the U.S. personal lines insurance segment a negative market outlook for most of 2024. However, in November, this outlook was changed to stable.

“Auto insurance represents roughly 35% of the total U.S. p&c market," Kempton says. “AM Best's negative outlook was influenced by concerns about insurers' ability to stay ahead of auto trends, particularly the continued increases in auto severity driven by persistent inflation, supply-chain disruptions and higher fatality rates."

However, the road has started to become a little less bumpy in the personal auto market as p&c insurers achieved a strong statutory underwriting profit year-over-year in the first quarter of 2024.

By mid-year, carrier results had continued to improve, leading to a slightly more positive outlook. Those improvements are expected to continue into 2025, according to a Fitch Ratings report. Importantly, the return to underwriting profitability may cause price increases to level off, the report said.

In their continued effort to navigate the evolving personal auto market, carriers have been looking to pursue gradual changes. “We've started to see some positive shifts in the personal auto market, like the adoption of telematics and usage-based insurance programs," Eckert says. “These programs allow insurers to offer more personalized pricing options based on individual driving behavior, providing a more tailored and often cost-effective solution for consumers."

Additionally, “vehicle technology can positively impact frequency," Kempton says. “And losses from distracted driving may also improve as state laws enforce safe driving, more drivers adopt telematics and agents realize the profuse benefits of selling these products to their customers."

Improving technology is a determining factor for many carriers as they look to employ a strategic response to this volatile market. “With the data available, we are able to identify that certain types of models are having less accidents, allowing us to make pricing more competitive," Grove says. “The technology is changing so fast, but we think it's an important trend in the industry."

However, the growing complexity of vehicles, particularly with the increased adoption of electric vehicles (EVs), is resulting in more parts and labor hours per repair, according to CCC Intelligent Solutions's “Crash Course Q3 2024 Report." Further, the average repair cost for an EV is 46.9% higher than that of a non-EV, the report says.

Staying ahead of these trends is critical to the industry's viability, with agents playing an indispensable role. As trusted advisers, independent agents continue to assist their clients in reducing premiums. “Agents are really pushing higher deductibles right now when it comes to physical damage and, in a lot of cases counseling their customers not to file small claims," Grove says. “That's definitely contributing to some of the drop in frequency."

Olivia Overman is IA content editor.