The bottom line: Forecast scenarios
In our Baseline scenario, personal auto net written premiums may have dropped by as much as 11.4% quarter-on-quarter (QoQ) in Q2 2020, mainly driven by premium returns to policyholders. Premiums could stage a comeback with a quarterly rise of 11.2% in Q4 2020 if carriers end premium refunds. That said, due to decreases in rates, premiums are expected to decline 1.3% QoQ from Q1 2021 to Q1 2022. (See figure 1.) There is a much smaller drop and less volatility anticipated for commercial auto. In the baseline scenario, net written premiums could slide 1.4% QoQ for all of 2020 due to the economic slowdown, while remaining flat in 2021. Commercial auto could return to growth, but with a quarterly rise of only about 1.0% in 2022. (See figure 2.) Our no end in sight and fast bounce back scenarios result in varying levels of premium returns and rate declines. The duration and level of premium returns are expected to be key factors in determining when personal auto premiums might make a comeback.
Improved profitability could be a silver lining for auto insurers
There may be a silver lining, however, for auto insurers: Fewer miles are being driven during the pandemic. Reduction in traffic density normally lowers claim frequency, since roads tend to be safer with fewer vehicles. Coronavirus-related shutdowns and restrictions, along with the resulting slowdown in economic activity, led to a year-over-year drop of 39.6% in miles driven by U.S. passenger vehicles in April 2020, 22.9% in May 2020, 10.2% in June 2020, and 10.0% in July 2020, when compared to the end of February 2020, according to the latest available data from the Federal Highway Administration. The Freight Transportation Services Index, an indicator of commercial auto activity, was down year-over-year as well — by 13.8% in April, 12.3% in May, and 10.6% in June. Reports suggest that driving trends have started to normalize. However, persistent health concerns, a greater acceptance of remote working, and an ongoing economic slowdown could result in reduced vehicle usage for quite some time on both the personal and commercial side of the business. Ultimately, while this may undermine the top line, this should help improve the industry's bottom line. Indeed, S&P Global expects the personal auto combined ratio to fall to a profitable 93.1% in 2020 — an 8.9-point reduction compared to the 102% average for 2015-2019, according to the "2020 US Property & Casualty Insurance Market Report" published in June 2020 by S&P Global Market Intelligence. Meanwhile, the combined ratio for commercial auto insurers could improve by 6.3 points, from an average of 109.5% for 2015-2019 to 103.2% in 2020, S&P reported. This will likely be a welcome relief for auto insurers — especially for commercial carriers, which entered 2020 with nine straight years of above-100 combined ratios, according to a June 30, 2020 market segment report on commercial auto by A.M. Best. For more information about Deloitte's forecast methodology, as well as our forecast for workers' compensation and homeowners' insurance, go to The path ahead-Navigating financial services sector performance post-COVID-19. Former National Underwriter Editor-in-Chief Sam J. Friedman ([email protected]) is insurance research leader at Deloitte's Center for Financial Services. Follow Sam on Twitter at @SamOnInsurance, as well as on LinkedIn. Nikhil Gokhale ([email protected]) is an insurance research specialist at the Deloitte Center for Financial Services, and project leader for the insurance premium forecasting series. This piece is published with permission from Deloitte. See www.deloitte.com/about to learn more about Deloitte's network of member firms. Keep reading:
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