Easily the most startling number I've seen in ages comes from this article in the May 14 Wall Street Journal. The article is behind a paywall, and, in fact, the startling number is buried, so I'll go directly to it:
According to forthcoming research from Oliver Wyman, only 16 cents of every dollar of auto insurance premium directly benefits claimants through repairs, physical therapy and so on.
16 cents!
I certainly knew about all the other aspects of insurance that draw on that dollar of premium and understand all the expenses associated with distribution, underwriting and the complex mechanics of the claims process. But I've been operating based on the rule of thumb, as reflected in this article, that about 60 cents of every dollar goes to claimants.
Even that number struck me as far too low, and I've been arguing for years, such as in this article, that the percentage of premium returned to customers needs to increase greatly. We've explored at length how insurtech can raise that percentage both through helping customers reduce losses and by slashing expenses.
Now I find that, for auto insurance, I was wildly optimistic about where we stand now. It's a good thing for the industry that auto insurance is required. Otherwise, who would buy something with a negative 84% return?
I understand all about peace of mind and about everything the industry has to do that lies behind that, but...16 cents?
Have a great week.
Paul Carroll
Editor in Chief
