Auto insurance policyholders are fleeing their insurers. Recent figures are both alarming and intriguing. It’s true that some auto insurers will lose customers, but most customers will go on to buy coverage from another carrier. For insurers that can attract new customers, this shop-fest represents a lucrative opportunity. 

Nearly Half of Auto Insurance Customers Are Shopping

The J.D. Power 2024 U.S. Insurance Shopping Study shows that auto insurers can only raise prices so much before customers have enough. The average cost of auto insurance has increased by 22.2% year over year, as of February. Now, 49% of U.S. auto insurance customers say they have actively shopped for a new carrier in the past year. Although not all of those policyholders actually switched carriers, 29% did. The switch-rate is even higher among Generation Z drivers.

Significant Market Share Is Up for Grabs

Consumer Affairs says there were more than 243 million licensed drivers in the U.S. in 2023. The Insurance Research Council says around 14% of drivers are uninsured, but that still leaves nearly 209 million auto insurance customers. According to IBISWorld, the U.S. auto insurance industry had a market size, measured by revenue, of $362.1 billion in 2023.

If around half of insured drivers are shopping around for a new carrier, the opportunity for insurers is massive. Of course, if carriers both lose and gain customers, they’ll just be treading water. However, carriers that set themselves apart from the competition stand to gain more than they lose. By the same token, carriers that don’t compete stand to see their market share dwindle. This is a pivotal moment for the auto insurance industry.

How Auto Insurers Can Stand Out

Many policyholders are shopping because they’re tired of rising rates. When their rates rise despite years of being a profitable risk for their insurers, they feel betrayed. The Seattle Times says drivers are “confused and angry” over “outrageous” auto insurance premium hikes, citing one driver whose costs increased from $660 to $1,600 over the course of two years.

Drivers don’t always know the other side of the story – that insurance carriers are dealing with surging repair costs, high inflation, and rising claims severity – and many probably don’t care. If they’re good drivers, they want a good rate – and they’ll leave if they don’t get one.

How can insurers keep these policyholders happy while also protecting their bottom line amid rising claims costs? How can they stand out among the competition and seize the market share currently up for grabs? There is a way, but it means using a different risk selection formula than everyone else.

How Auto Insurers Can Stand Out

Carriers that use a differentiated risk selection approach will stand out from the pack.

Right now, many carriers are raising rates, which is driving away customers. Instead of filing for rate increases for entire segments – and instead of turning off whole segments – insurers should leverage machine learning to more accurately predict potential losses and more adequately rate policies. By individually rating each risk at the policy level, insurers can keep more business and improve their loss ratios.

Many drivers are already at their breaking point and may not get any relief in the near future. According to A.M. Best, the U.S. personal auto segment saw a net combined ratio of 112.2 in 2022 and results continued to worsen in the first half of 2023. Faced with underwriting losses, many insurers are raising rates – MarketWatch says auto insurance prices aren’t expected to come down in 2024.

Since the same challenges exist, it seems likely that auto insurance shopping will remain high. However, this opportunity won’t last forever. The insurers that seize market share now will come out ahead.