Best’s Market Segment Report: U.S. Personal Auto Insurers See Greater Profitability But Less Premiums in Pandemic-Hit 2020

Profitability metrics in the U.S. private passenger auto insurance segment showed notable improvement through third-quarter 2020 over the previous prior-year period, even though premium volume during the timeframe declined, according to a new AM Best report.

The new Best’s Market Segment Report, titled, “Premium Volume May Be Down but Profits Could Expand for Auto Insurers,” states that the loss ratio of private passenger auto insurers improved year over year by 9.2 percentage points to 57.3% through the third quarter of 2020. While fewer accidents due to a decline in the number of cars on the road and in miles driven during the pandemic-related lockdowns was a leading cause, fundamental improvements that personal automobile underwriters have made in recent years to enhance their focus on rate adequacy, improving auto repair management and making greater use of innovative measures were also primary factors. At the same time, fewer drivers also led to a 1.7% drop in direct premiums written through third-quarter 2020, compared with the same period in 2019. With the lower loss frequency, AM Best is estimating a four percentage-point improvement, to 94.4 from 98.8, in the segment’s combined ratio for 2020.

Personal auto insurers at the start of 2020 had been benefiting from a couple of years of positive underwriting and operating performance momentum. This reflected the robust risk-adjusted capitalization of most writers, in addition to the positive impact of technology and data analytics on their underwriting, ratemaking and claims handling. Between these factors and the unexpectedly positive impact of COVID-19 on U.S. auto travel, the segment’s profitability improved significantly. Additionally, 21 insurers generated more than $1 billion in private passenger automobile direct premiums written through third-quarter 2020. However, for 10 of these 21 insurers, their top-line premium through showed a decline when compared with the previous prior-year period, with three experiencing premium growth of 1% or less, as most of the industry’s leading auto insurers offered premium discounts, rebates or refunds during the pandemic surge.

U.S. roadways are expected to remain less populated than normal for an indeterminate period in 2021, which could extend the auto writers’ favorable loss frequency trend. However, cars traveling at faster speeds on less-crowded roads can cause more-serious accidents, increasing claims severity. Distracted driving also plays a significant part in loss trends. Whether the impact of heightened levels of competition and the push for scale will temper the positive results over the longer term remains to be seen. Although carriers across the segment maintain generally robust risk-adjusted capitalization levels, rate adequacy remains a key area of focus. AM Best’s initial projection for private passenger auto profitability in 2021 sees it falling more in line with that of 2018-2019, with a combined ratio of approximately 98.0.

To access a copy of this market segment report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=306463.

AM Best is a global credit rating agency, news publisher and data analytics provider specializing in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more information, visit www.ambest.com.

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