High claims severity shows little sign of slowing, reveals LexisNexis report

Many insurers are focused on maintaining profitability while facing persistent increased claims severity, customer shopping rates and risky driving behavior, according to LexisNexis Risk Solutions’ 2024 Auto Trends report. The report shows that claims severities have risen steadily since 2020: bodily injury severity has increased by 20%, material damage coverage by 47% and total loss claims is up by 29%. 

LexisNexis found that almost half, 46%, of customers were dissatisfied with their overall claims process, especially with total claim duration. Research reveals that this was the lowest ranking area in customer satisfaction, with 40% of respondents reporting that it took over a month to obtain a final payment when settling their claim. The number of people that customers interacted with throughout the process is the second greatest area of frustration.

The report states that 2023 held an unprecedented 14% year-over-year rate increase and a combined loss ratio of over 106%, leading insurers to alter their approach to profitability amid the current market challenges. Consumers have responded ro rate increases by shopping and switching auto policies, reaching record levels in 2023. 

Of those with auto insurance, 41% shopped at least once for a new policy, and overall, shopping increased by nearly 5% in 2023 compared to the prior year. New policies increased over 6% as many of those who shopped did ultimately switch carriers. Retention rates in 2023 dropped from 83% to 80%; however, the report advises insurance organizations reevaluate their underwriting practices and identify profitable, low-risk customers by analyzing internal or external consumer data. 

Rising claims costs can be attributed to a number of factors, such as labor and parts shortages and increased electric vehicle (EV) sales. EV claims are higher in number and more severe than  traditional internal combustion engine (ICE) vehicles–according to the report, EV claims frequency was 17% higher and claim severity was 34% higher than ICE vehicles.

Increased attorney representation in the claims process is also contributing to higher costs. A market research study commissioned by LexisNexis revealed that 85% of claimants were approached by one attorney. Of those with an attorney, more than half, 51%, received a higher settlement amount. Ninety-three percent of respondents who sought legal involvement would “definitely” or “probably” hire an attorney for a future claim.