The growth of personal auto premiums written through the direct channel has slowed down in recent years, according to a report by S&P Global Market Intelligence. While direct personal auto insurance writers are still growing, their rate of growth is lagging behind that of the traditional market. In 2023, direct channel premiums rose by 10.3%, compared to an 18.7% growth for the rest of the market.

The direct channel refers to customers who purchase insurance online, via mobile devices, or by phone, without the involvement of an agent. This channel has been dominated by industry giants such as GEICO Corp., United Services Automobile Association (USAA), and The Progressive Corp., which together account for 79% of total direct channel premiums written.

However, even these industry leaders have experienced a slowdown in growth. GEICO's pullback in the direct channel has created an opportunity for other insurers, particularly Progressive and USAA, to gain market share. S&P Global Market Intelligence predicts that Progressive will see a direct premiums written growth rate of 23.4% in 2023, while USAA will experience a growth rate of 20.4%.

Insurance technology startups, known as insurtechs, could have taken advantage of this slowdown, but some of them have also reined in their growth to control costs and turn a profit. For example, Root Inc., a company that primarily uses a direct-to-consumer model, only saw a 0.2% increase in direct premiums written in the first nine months of 2023. Lemonade Inc., another insurtech that markets directly, actually decreased its personal auto premiums written by 9.8% during the same period.

The report suggests that State Farm Mutual Automobile Insurance Co., the market leader in US personal auto, may have picked up some of GEICO's agency business. However, State Farm largely avoids the direct channel, with its subsidiary HiRoad Assurance Co. writing only $21 million in direct premiums in the first three quarters of 2023.

The slowdown in the direct channel growth can be attributed to various factors. Rising claims severity, driven by the increasing complexity of vehicle components and labor shortages, has led to higher costs for insurers like GEICO. In addition, GEICO has reduced its advertising expenditures, which is a key driver of direct channel sales growth.

While the direct channel has experienced a slowdown, other distribution strategies have gained attention in the insurtech world. Embedded insurance, the integration of insurance products into other platforms or products, remains a hot topic. Root Inc. sees embedded products as a core part of its distribution strategy and a foundation for long-term growth.

Lemonade Inc. introduced a program called "synthetic agents" in 2023, which involves financing a portion of the company's customer acquisition costs in return for a share of the premiums generated. This model allows Lemonade to preserve its existing direct distribution while obtaining additional funding for growth.

Overall, the US insurtech market is experiencing a shift in the growth of personal auto premiums written. The direct channel, which once outpaced the traditional market, is now lagging behind. Insurtech startups and industry giants alike are adjusting their strategies to navigate this changing landscape.

This article was published by S&P Global Market Intelligence.