WASHINGTON – The U.S. Department of the Treasury’s (Treasury) Federal Insurance Office (FIO) today released its Report on Personal Auto Insurance Markets and Technological Change. The report is part of Treasury’s ongoing efforts to assess costs facing U.S. consumers.
Personal auto insurance is significant for the national economy and consumers’ financial stability. Most Americans rely on private automobiles for transportation, particularly to get to their places of employment. With one exception, all states and the District of Columbia require vehicle owners to maintain personal liability auto insurance. Personal auto insurance premiums were about 35.8 percent of the entire U.S. property and casualty insurance market in 2023, or about $318 billion.
The report examines costs in the personal auto insurance market for consumers, as well as technological changes in the personal auto insurance sector. The report also includes an overview of the auto insurance underwriting process, that considers premium setting and ratemaking, as well as state rate regulation, to inform policymakers, consumers, and other stakeholders.
Among the report’s key findings:
- In nominal terms, between 2015 and 2022, premiums for minimum required auto insurance liability coverage increased, loss severity increased, and loss frequency decreased. The report notes that personal auto insurers generally experienced underwriting losses during this period. The report finds that for many consumers auto insurance premiums are a significant component of their budgets, likely contributing to the observed increase in the number of uninsured motorists.
- The report discusses insurers’ use of “proxy factors” such as age, credit history, education level, gender, and marital status in the underwriting of personal auto insurance, and notes that state regulators and other policymakers are reviewing continued use by insurers of such proxy factors.
- Technology, including the use of artificial intelligence, is shaping the future of the personal auto insurance business. Such technologies may align premiums more closely with relevant driving behavior, but may also raise consumer concerns about security, privacy, and transparency. As use cases for these technologies continue to develop, state insurance regulators and other stakeholders are evaluating the public policy implications, particularly regarding the role of artificial intelligence.
The report’s recommendations include:
- State insurance regulators should continue to monitor and analyze the cost and availability of personal auto insurance for consumers.
- Insurers and regulators should build on existing efforts to reduce the frequency and severity of auto accidents to lower auto insurance costs.
- Legislators, regulators and the National Association of Insurance Commissioners (NAIC) should continue to monitor insurers’ use of proxy factors.
- The NAIC and its Center for Insurance Policy and Research should study and report on the use of proxy factors.
- State insurance regulators and the NAIC should continue to focus on auto insurers’ use of artificial intelligence and the effects of its increased use on consumers, cybersecurity, data privacy, and data integrity.
- The NAIC should update its 2022 Private Passenger Artificial Intelligence/Machine Learning surveys every two years.
FIO, which was established within Treasury by the Dodd-Frank Wall Street Reform and Consumer Protection Act, monitors all aspects of the insurance sector. View the FIO Auto Report. For more information on FIO, see About FIO.