The U.S. Department of the Treasury's Federal Insurance Office (FIO) has released a report on personal auto insurance markets and technological change. This report is part of ongoing efforts to evaluate costs faced by U.S. consumers.
Personal auto insurance plays a crucial role in the national economy and consumer financial stability, as most Americans depend on private vehicles for transportation, particularly for commuting to work. With one exception, all states and the District of Columbia mandate vehicle owners to have personal liability auto insurance. In 2023, personal auto insurance premiums accounted for approximately 35.8 percent of the entire U.S. property and casualty insurance market, amounting to about $318 billion.
The report analyzes consumer costs in the personal auto insurance market and examines technological changes within the sector. It provides an overview of the underwriting process, which includes premium setting, ratemaking, and state rate regulation to inform policymakers, consumers, and other stakeholders.
Key findings from the report include:
Between 2015 and 2022, premiums for minimum required auto insurance liability coverage increased in nominal terms while loss severity rose and loss frequency decreased. The report notes that during this period, personal auto insurers generally experienced underwriting losses. It also highlights that for many consumers, auto insurance premiums are a significant part of their budgets, likely contributing to an increase in uninsured motorists.
The report discusses insurers' use of "proxy factors" such as age, credit history, education level, gender, and marital status in underwriting personal auto insurance. State regulators and policymakers are reviewing these practices.
Technology is shaping the future of personal auto insurance through innovations like artificial intelligence (AI). While AI may align premiums more closely with driving behavior, it raises concerns about security, privacy, and transparency among consumers. As technology use cases develop further, state regulators are evaluating public policy implications regarding AI's role.
Recommendations from the report include:
State regulators should continue monitoring personal auto insurance costs and availability.
Efforts should be made by insurers and regulators to reduce accident frequency and severity.
Legislators and regulatory bodies like NAIC should keep track of proxy factor usage by insurers.
NAIC's Center for Insurance Policy Research should study proxy factor use.
Focus should remain on AI's impact on consumers concerning cybersecurity issues.
NAIC is advised to update its Private Passenger Artificial Intelligence/Machine Learning surveys biennially.
FIO was established within Treasury under the Dodd-Frank Wall Street Reform Act to monitor all aspects of the insurance sector.
