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Three Assumptions Keeping Auto Insurers from Renewal Profitability

Kam Lidhar

Director, Auto Insurance

How does your organization approach new business underwriting? 

In all likelihood, you operate from a position of knowing very little about an individual at new business. To change that, you probably use some combination of advanced segmentation and data and analytics, from external and internal sources, to gain insights into the risk.

At new business, you most likely use the tools at your disposal to understand your auto insurance risk exposure, select risk that meets your risk appetite, and price risk competitively. So, let me ask another question: How does your organization approach renewal underwriting?

If you’re like most U.S personal auto insurers, you may not apply the same underwriting discipline to renewal that you do at new business. Do you incorporate the same rigor to identify policyholders whose risk profiles have changed materially? Do you check for changes such as undisclosed drivers, traffic violations or undisclosed claims? 

Our conversations with insurers suggest these practices are much less common at renewal than they are for new business.

Many insurers are missing an opportunity in their renewal books

Recent research from LexisNexis® Risk Solutions reveals that 6.6% of renewing drivers have one or more new violations each year—which translates into a 93% increase in claims dollars for those renewing drivers with new violations.

What’s more, we also discovered that driving behavior changed post-COVID. If you’re underwriting like it’s 2019, you could be missing significant opportunities to understand and price risks. Learn more in our latest white paper.

So why aren’t you monitoring for key changes at policy renewal on a regular basis? Let’s look at three underlying assumptions that may be driving this behavior.

Assumption 1: “My renewal book is profitable.” 

After all that due diligence at new business, you may have a tendency to be complacent about your renewal book and to downplay any incremental insights to be gained from further scrutiny. But you still don’t know what you don’t know—and our research shows that a meaningful percent of your renewal book will probably have a change in their risk profiles that you don’t know about. 


Without a proactive renewal strategy, you could be retaining some customers at the wrong rate. 

For example, consider Tim, a long-standing customer. Tim got a speeding ticket last summer, but he didn’t inform his insurer about the violation. He’s sharp enough to know not to shop for a new policy, because a new insurer would learn about the violation and his premiums would increase accordingly. 

Whether his current insurer finds out about the violation depends on whether his insurer has a proactive renewal strategy. If its strategy includes continuous monitoring of auto insurance policies, it would be able to flag Tim’s policy at renewal and make more informed decisions about how to proceed. If not, then Tim might be getting a great deal on his car insurance—with his insurer none the wiser. 

Assumption 2: “I’m driving growth with new business.” 

While the auto insurance industry has started to soften a bit, we’re still seeing combined ratios exceed 100 across the board.  

Today’s market still requires a laser focus on profitability. In fact, four times as many insurance executives say they’d prioritize profitability over growth  (48%) than would prioritize growth over profitability (13%).  

By focusing primarily on new business, you may be ignoring the opportunities to use renewal to better understand risk, adjust pricing and restore profitability..

Assumption 3: “My customers are resigned to higher rates.” 

Due to the hard market over the past two years, many consumers experienced substantial rate increases: in 2024, the average annual premium for full coverage is 26% higher than in 2023. 

Those rate increases, coming at a time when the cost of living is also rising, have prompted many customers to shop around for auto insurance. Notably, the LexisNexis® Insurance Demand Meter found that in Q4 2023, U.S. auto insurance shopping posted record volumes for the last quarter of the year, with shopper growth climbing year over year from -1.2% to 4.7%. A notable 41% of insured households shopped for insurance at least once last year.

Customers have been trained to shop around, and the ease of getting quotes online means there’s little barrier to them doing so. That’s simultaneously creating heightened competition for new business and compelling you to pay closer attention to your renewal book.

Consistent underwriting means focusing on new business and renewal

Auto insurance has become so competitive that sophisticated segmentation and risk assessment is essential to competing for new business. 
 
But that rigorous, data-informed approach is just as applicable at auto insurance policy renewal as it is at new business. 
Practically speaking, I’m not suggesting that you re-underwrite every policy on your renewal books. But I am suggesting that you actively monitor your book of business to know which policies warrant a closer look at renewal.
 
Historically, auto insurance renewal monitoring would be a highly manual process. But today, LexisNexis® Active Insights allows you to automatically monitor your book of business for changes in risk, such as:
  • New drivers in the household
  • Undisclosed claims
  • Traffic violations
  • New shopping behavior 

Going back to our example of Tim and his undisclosed violation, an insurer using LexisNexis® Driving Behavior 360 at renewal will know about Tim’s speeding ticket. By closing the knowledge gap , his insurer could make more informed decisions—beginning with whether they want to retain Tim as a customer in the first place.
 
By closing the knowledge gap, you’re better equipped to make data-informed decisions and set accurate, competitive prices.

But more than that, you can anticipate major shifts to your policyholders’ insurance needs. So you can have proactive conversations and present them with relevant offers that meet them where they are. So that when their life changes, you’re there to make sure their insurance changes too. 

The key to making this all happen? Having a proactive, engaged renewal strategy based on a foundation of consistent, disciplined underwriting. Learn more about driving profitability at policy renewal