We have heard forecasts for some time that auto insurance will change technology and consumer behaviour, to which insurance brokers will find it difficult to adapt. Subscription vehicles (“pay per use”), preference for displacement by applications, and insurance offer pasteurized on websites and applications. These autonomous vehicles are theft or collision-proof; even cooperatives or associations force insurers to flatten margins and commissions.
These negative long-term prospects read more as a warning that brokers need to diversify their portfolios than actually as an imminent exclusion of brokers as intermediaries in the sale of Short term car insurance.
But, more immediately, car insurance faces another challenge arising from the lack of parts and electronic components, which reduced the production of new vehicles and the loss ratio above expectations for a time of the pandemic.
General repair parts have always been a challenge for insurers, but the lack of electronic components is new. The reason is that the global microchips, microprocessors and semiconductors industry has had to deal with the huge increase in the sale of computers, cell phones and tablets generated by commuted work¹, the home office, as a result of an unpredictable pandemic.
With fewer parts and components, car production fell short of a surprising demand given the initial perspective that the home office would discourage the use of cars that would then spend more time in garages. But that was different from what was seen in the big cities’ traffic or the accident rate. People stopped using the car every day, but others who had a car and used public transport, not being able to work from the home office, started using it for health reasons.
With the demand for buying cars on the rise and the low delivery of new ones, there was an increase in the sale of used cars. In the year to August, the sale of used cars grew by 48%², making the law of supply and demand apply: the price of used cars increased by an average of 13%².
What are the immediate impacts of car insurance?
1. Price increase. Given that FIPE³ corrects insurance policies, indemnities are now greater than the LMI (“Maximum Indemnity Limit”) originally insured, which will generate the need for price corrections in insurers. Those who are predicted and corrected will tend to better preserve their results and reserves.
2. Insurers should pay attention to Circular Susep nº 639⁴ of 09/08/21 (in force from 01/09/2021), which again allows insurance contracting at a determined value (Art. 3º§ 2º). This modality, which fixes the LMI at contracting, tends to protect the insurer from increased vehicle prices and even allows for additional gains through endorsements of increased LMI.
3. Extra car clauses will generate more expenses for insurers, and the attentive broker will always recommend hiring for the longest possible period.
4. The associations and cooperatives that regulate indemnities by adjusting the collection of deductibles⁵ to the cashier will tend to have greater friction with their members but will continue to have the advantage of using used parts.