Personal Auto Rate Hikes Not Keeping Up with Losses: Fitch
Insurance Journal, March 2017
U.S. personal auto underwriters increased premium rates “significantly” in 2016. But here’s the thing: it wasn’t enough.
Loss trends are still outpacing rate changes. Also, the U.S. P/C industry statutory combined ratio will likely hit 108 in the coming months, a 3.5 percentage point rise and the weakest result in 15 years, Fitch Ratings noted in a new report.
“Results are likely to improve moderately in 2017, but competitive forces and market fundamentals will inhibit a shift back to an underwriting profit in personal auto for some time,” the Fitch report asserted.
A number of factors are at play that mean the market is still weakening, Fitch said. GAAP auto segment results show higher combined ratios for nearly all of a group of 10 publicly traded insurers in 2016, Fitch said, with an average combined ratio increase of 3.3 points from 2014 to 2016.
As Fitch pointed out, carriers including Progressive and Infinity Property & Casualty Corp. continued to generate major underwriting profit for personal auto despite industry weakness. But the overall market continues to weaken in terms of annual underwriting performance because of higher catastrophe related losses and unfavorable claims experience. State Farm Mutual Insurance Group is a major example of this, Fitch said, due to its reported $7 billion underwriting loss (18 percent of earned premium).
Also, personal auto underwriters continue to face adverse loss trends that drove higher claims costs over the last two years. They include claims frequency jumps from more miles driven, more distracted driving, higher physical damage losses because of more complex and sophisticated automobile parts, and higher bodily injury costs from more severe accidents.
As well, the Consumer Price Index data for auto insurance costs grew by 7.6 percent in February 2017. Fitch said that that points to continuing rate increases in the short term, which should lead to some modest underwriting improvements through the year.
Underscoring the challenges ahead, Fitch said that risk modeling for the sector, among the most sophisticated efforts in the industry, has not done its job the way it should.
“Personal auto insurance is technologically the most advanced P/C market segment with tremendous progress over time in data analytics that enhance risk selection, price segmentation and predictive claims models,” Fitch said. “Recent poorer results in auto insurance reveal that the most sophisticated models may not fully anticipate changes in loss cost trends.”
There’s another potential challenge for the sector. Fitch added that underwriters may not be paying complete attention to what risk modeling tells them “due to competitive pressures and an interest in maintaining premium volume and policy retention levels.”
State Farm lost $7 billion on its auto insurance underwriting in 2016. In 2015, the underwriting loss was $4.4 billion.
State Farm is far from alone in seeing deteriorating results in its auto insurance line. GEICO, Travelers, Allstate, The Hartford and other insurers are also looking for ways to counter rising auto costs. Analysts have reported that the auto line has been a drag on P/C insurers’ results.
In Travelers’ fourth quarter report, CEO Alan Schnitzer acknowledged the difficulty of the personal auto business.
“While homeowners profitability remains strong, we are disappointed with the underwriting results in personal auto and are taking pricing and other actions to improve its profitability,” Schnitzer said.
After giant auto insurer GEICO reported a 101.4 combined ratio for the fourth quarter, parent Berkshire Hathaway CEO Warren Buffett noted that industry loss costs are “increasing at an unexpected pace.” But while these trends have caused other insurers to pull back from writing new auto customers, GEICO is full steam ahead.
“We like to make hay while the sun sets, knowing that it will surely rise again. When insurance prices increase, people shop more. And when they shop, GEICO wins,” he wrote in his annual letter.
Categories
- Benefits Resources
- Bonding
- BOP
- Business Insurance
- Commercial Auto
- Commercial Property
- Company News
- Construction
- Crime Insurance
- Cyber Insurance
- Directors & Officers
- Employee Benefits
- Employment Practice Liability Insurance
- Entertainment
- General Liability
- Health Insurance
- Healthcare
- Healthcare Reform
- Homeowners Insurance
- Hospitality
- Manufacturing
- Medical Malpractice
- Mining & Energy
- Nightclubs
- Personal Auto
- Personal Insurance
- Professional
- Restaurants
- Retail & Wholesale
- Risk Management Resources
- Safety Topics
- SBA Bonds
- Security
- Seminars
- Technology
- Tourism
- Transportation
- Uncategorized
- Workers Compensation
Archives
- May 2021
- November 2020
- October 2020
- September 2020
- August 2020
- July 2020
- June 2020
- May 2020
- November 2018
- September 2018
- August 2018
- May 2018
- April 2018
- March 2018
- February 2018
- January 2018
- December 2017
- November 2017
- October 2017
- September 2017
- August 2017
- July 2017
- June 2017
- May 2017
- April 2017
- March 2017
- February 2017
- January 2017
- October 2016
- September 2016
- August 2016
- July 2016
- June 2016
- May 2016
- April 2016
- March 2016
- February 2016
- January 2016
- December 2015
- November 2015
- October 2015
- September 2015
- August 2015
- July 2015
- June 2015
- May 2015
- April 2015
- March 2015
- February 2015
- January 2015
- December 2014
- November 2014
- October 2014
- September 2014
- August 2014
- July 2014
- June 2014
- May 2014
- April 2014
- March 2014
- February 2014
- January 2014
- December 2013
- November 2013
- October 2013
- September 2013
- August 2013
- July 2013
- June 2013
- February 2013
- November 2011
- October 2011
- September 2011
- July 2011
- June 2011
- March 2011
- November 2010
- October 2010
- September 2010
- April 2010
- February 2010
- November 2009
- October 2009
- November 2008
- August 2008