The impact of the COVID-19 outbreak has been devastating for the global economy, and with many countries in extended lockdown, there has been a seismic shift in customer behavior and business operations. As of April 11, U.S. auto insurers such as Allstate, Farmers Insurance, GEICO, The Hartford, Liberty Mutual, Progressive, Nationwide, State Farm and USAA were expecting to return $10.5 billion to policy owners via refunds, discounts, dividends and credits.

Executive Summary

To tackle the economic impact of the pandemic, auto insurers need to optimize customer experience to achieve higher retentions while at the same time maintaining profitability, according to professionals at EXL Service, an operations management and analytics company that serves various industries including insurance. Here, they deliver a step-by-step guide for carriers to evolve their business models in order to maintain growth in spite of COVID by focusing on new data sources, adopting new approaches to customer segmentation and devising corresponding pricing strategies for the new customer segments.

Auto insurance is likely to see significant changes to business models in the coming months, with significant impact on carrier revenues across the industry from decreased premiums (related both to discounts and decreased travel during lockdown and sharply declining new car sales) and the recognition that historic loss assumptions may be insufficient under current conditions.

Insurance companies must now determine the optimal discounted rates to retain customers while maintaining profitability. In addition, regulatory pushes for carriers to accept delayed premium payments without customer penalties are putting a strain on cash flows.

To tackle the economic impact of the pandemic, auto insurers need to adopt a robust framework that optimizes the customer experience, resulting in higher retention while maintaining profitability. Some key objectives that such a framework should address are:

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