Embedded Auto Insurance Report

Q1 2024

Quarterly Embedded Auto Insurance Report

Insights on the embedded auto insurance opportunity for automotive dealers

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A Light at the End of the Tunnel

The last two years have been challenging for the property and casualty (P&C) insurance sector, especially within automotive retail.

2022 ushered in the hard market of 2023, which turned into one of the toughest years for the auto insurance industry in decades. Driven by rising loss costs due to inflation, supply chain issues, and natural catastrophes, P&C providers suffered increased underwriting losses, which they offset by raising premiums.

Consumers had fewer insurance options as carriers closed their doors to new or higher risk business. They may also have experienced higher insurance premiums as carriers adjusted prices to cover increased risks and losses.

Dealers weren’t able to, or were less inclined to, embrace insurance programs in the dealership. That's all set to change this year. Polly data indicates that there is a light at the end of the tunnel and the auto insurance opportunity will pick up in 2024.

Embedded Auto Insurance Market Set to Improve in 2024

Embedded Auto Insurance Market Recovery: Q1 2023 – Q1 2024*

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Market health bottomed out at the end of 2023. The embedded auto insurance market looks to improve dramatically in 2024.

States with challenged insurance markets due to regulatory constraints, high cost to insure, or high catastrophe risks are likely to open their insurance markets in 2024.

Carriers that had been reluctant to take on new business are rapidly beginning to onboard new customers now that profitability has stabilized. Premiums will likely begin to stabilize in 2024 as state-by-state rate increases that carriers requested in 2023 take effect. Dealers considering embedded insurance programs should act now to get ready market opportunities in Q2 and beyond.

As Front-End Gross Continues to Decline from All-Time Highs, Back-End Gross Begins to Dip

Dealership Profit Margins (384,121 New and Used Vehicle Transactions)**

While it’s no surprise that post-pandemic front-end gross is still high by historical measures, it has begun to decline from its all-time high (around $3,500 per sale) in the second half of 2021.*

What’s slightly surprising is that, until recently, back-end gross has stayed relatively flat over the three-year period ending in Feb. ‘24. This indicates that back-end profits are less volatile and not as subject to macro-economic trends. However, back-end gross began to dip as interest rates continued to rise over 2022 and into 2023. The recent decline in back-end gross began late last year and continues into 2024.

19 Dealer Groups See Increased Back-End Gross with Customers Who Receive Insurance Quotes

Average Back-End Gross Per Deal: 19 Franchise Dealer Groups (178 Rooftops)***

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The above graph represents back-end gross data from 19 dealerships representing 178 rooftops with statistically viable data on car sales and insurance volume (384,121 transactions).

In every case, when insurance was introduced to customers at the dealership, dealerships saw an improvement in back-end gross.

Across 384,121 Vehicle Transactions, Customers Who Received Insurance Quotes Spent More in the F&I Office

Increase In Back-End Gross***

Increase Back-End Gross

Back-end gross improves (10% or more on average) as consumers move further down the insurance consideration funnel.

What’s important to highlight is that back-end gross lifted even if the car buyer didn’t buy insurance. Just having an insurance conversation and getting a customer competitive quotes was enough to correlate with back-end gross lift.

The improvement in back-end gross was visible even when there are no reported insurance savings but is biggest for car-buyers who reported savings of $10 or more per month. The 2023 average for Polly customers who save on insurance is $75 per month.*

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Predictions for Q2 2024

The insurance market is improving in 2024.
With states opening up and the insurance market stabilizing, dealership customers will likely have access to a broader range of competitive insurance products from significantly more carriers.

That means more opportunities for car buyers to save money on their insurance, which translates into higher profit margins for dealers.

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Predictions for Q2 2024

That means more opportunities for car buyers to save money on their insurance, which translates into higher profit margins for dealers.

The Experts

Weili

Weili Yuh
SVP of Underwriting

Sonia

Sonia Xing
VP of Acquisition Analytics

Kalin

Kalin Kostadinov
Director of Analytics

Methodology

* Embedded auto insurance market opportunity data from Q2 2022 through Q1 2024, defined as new policies per car buyer engaged in an insurance conversation at the dealership, weighted by consumer mix and insurance carrier risk appetite

** 934,422 transactions for the period 2021-03-01 to 2024-02-29 (36 calendar months). 13.5K transactions that pertained to VINs for which there are multiple resales (two in the same month, or 3 or more in this 3-year period) were removed. 10K transactions on 855 ‘frequent buyers’ (with 5 or more buys in the 3-year period) were removed. Finally, 75 dealerships with less than 1,000 transactions in 2022 were removed, leaving 740K transactions of vehicles sold to customers in dealerships that have a substantial sales volume in a substantial part of the 3-year period. Substantial sales volume was defined as dealerships that had at least 5000 sales and at least 200 insurance quotes. Finally, these transactions data are linked to our own quote and sales data, by the VIN, name, e-mail, and date of transaction.

*** *Analysis of the back gross across 384,121 sales for 19 dealer groups across 178 rooftops. The Q1 (25th percentile), Median (50th percentile), and Q3 (75th percentile) are all higher for sales with insurance engagement compared to all sales. Further analysis suggests that insurance engagement is associated with a 20% higher back gross. In fact, a Mann-Whitney U test, a non-parametric test used to compare the distributions of two independent groups, performed on 461,568 transactions coming from the dealerships with significant engagement with Polly in both prior years confirmed that this difference is statistically significant (p < 0.01) at that level.

In addition, all 19 dealership groups analyzed have a median back gross for sales with insurance engagement that is higher than that for all sales, and 14 demonstrated a statistically significant association between insurance engagement and a 20% higher back gross. This represents approximately 74% of the dealership groups studied.