“Personal automobile insurance shrank as a portion of the U.S. economy and generated a return-on-surplus of only 7.8 percent during 1993 to 2001,” said Michael Weinstein, director of research, Conning Research & Consulting in a statement. “Given the frequency of outright poor results on a year-by-year or insurer-by-insurer basis, Conning sees danger on the track. The nature of the marketplace will prevent those trailing the leaders from moving up.”

According to the study, the compounded U.S. GDP from 1993 through 2001 stood at less than 60 percent, while premium growth stood at slightly more than 46 percent for that same period.

The report states that the poor results are due primarily to the inability to reduce expense compared to other carriers and “insufficient progress” in reducing expenses.

The Conning study analyzed the results of 161 insurers for personal auto from 1993 to 2001. It says only 15 insurers achieved averages exceeding the benchmarks for both growth and return on surplus. The study explores why those insurers succeeded and the rest of the industry did not.

In an interview with National Underwriter, Mr. Weinstein said the successful companies had a clear strategy about their business. Either they understood their underwriting and determined a niche area or successfully controlled administrative costs. The less successful companies “could not articulate what they were doing.”

The report, he added, details these strategies.

Conning said its sees little reason to expect broad improvement during the period 2003 to 2007.

Some of the reasons it gave were that premium growth would be suppressed, caused by a combination of regulations, drop in new car sales, and customers becoming better price shoppers. Investment income will also be stifled because of the short reserve tail. Bond portfolio values could play a part in stifling improved earnings when and if interest rates increase.

Loss levels will also not improve because of the escalating cost of medical treatment.

The report adds that until insurers can make the Internet a greater selling tool for its products, carriers will not see much improvement in their overall expenses.

Weak and moderately successful insurers, the report said, would have difficulty in the future finding success or trying to take bold moves to get there.

Personal lines automobile insurance accounts for 40 percent of all property-casualty business, Conning said. Except for 1997, combined ratios have exceeded 100 percent for the line, most recently reaching 109 and 107.8 percent in 2000 and 2001, respectively.

Mr. Weinstein said he personally was not surprised by the overall results of the survey. However, the differentiation of success among the companies did surprise him, adding that he thought the company results would be aligned more tightly.

While there are no plans to do another general study in the next five years, he said Conning would look more closely at specific results of the study, the success factors and issues facing insurers.

“It is too big of a line not to research,” Mr. Weinstein noted.

For information about obtaining the report, go to www.conningresearch.com.

Reproduced from National Underwriter Property & Casualty/Risk & Benefits Management Edition, January 20, 2003. Copyright 2003 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.