U.S. personal auto insurance underwriting results dove in 2021
A report from Fitch Ratings explores the struggles facing auto insurance underwriting as the U.S. bounces back from the pandemic.
While 2020 saw a pandemic-related dip in driving activity, U.S. personal auto insurance underwriting results declined sharply in 2021, especially during the fourth quarter, says a recent report from Fitch Ratings.
As claims return to a more normal frequency post-lockdown, carriers are raising prices to offset both the frequency of loss and an increase in loss severity. However, according to Fitch, the magnitude of rate increases might be met with pushback from regulatory constraints and competitive forces, as well as issues surrounding inflation and the supply chain, which can boost incurred losses.
The report attributes this information to supplemental GAAP filings for a group of ten publicly traded companies, which represent 44% of the industry market share. This group’s personal auto combined ratio rose from 88% in 2020 to 96.3% in 2021.
According to Fitch, Cincinnati Financial (91.2%) and Hartford Financial Services (92.9%) led with the lowest segment combined ratios. Larger carriers, including Geico, Progressive and Allstate, each saw 6-9% increases in their 2021 auto ratios. Kemper was the only insurer in that group to report an underwriting loss for the year, with a combined auto ratio of 113%.
Increased litigation activity in auto claims, the report states, has driven loss severity over the last several years and, more recently, the increase in severity can also be attributed to more aggressive driving practices and rising physical damage costs.
Fitch Ratings’ report specifically mentions market leader State Farm, which reported a $3.4 billion (8% of earned premiums) statutory underwriting loss in auto before policyholder dividends in 2021. This is in stark contrast to the $3.5 billion gain (8.3%) they reported in 2020.
As mentioned earlier, the strong showing many auto carriers experienced in 2020 can be mostly attributed to the 25-30% reported decline in auto claims frequency that occurred as a result of lessened travel during the first year of the pandemic. Premiums are expected to rise throughout 2022 in order to bring costs in line with pre-pandemic levels and, hopefully, stabilize auto insurance underwriting moving forward.
You can view Fitch Rating’s full report here.