What's hampering personal lines auto insurers' profit?

New report examines results of nine insurers including Progressive, GEICO and Allstate

What's hampering personal lines auto insurers' profit?

Motor & Fleet

By Mika Pangilinan

US personal auto insurers continue to grapple with underwriting losses despite efforts to adjust premium rates, according to a recent report by Fitch Ratings.

Mid-year results from publicly traded insurers have indicated persistent challenges in the form of unfavorable claims severity and increased losses from catastrophic events.

As such, the credit rating agency predicted that “future profit improvement will continue to be hindered by unusually high loss severity.”

Its analysis pointed to a group of nine insurers that reported quarterly personal auto segment results, including Progressive, GEICO and Allstate

According to GAAP filings, aggregate written premiums for these personal auto players surged by 10% compared to the previous year.

Combined ratio (CR) also improved slightly to 100.4% from 101.3% in the first half of 2022, a trend attributed to GEICO’s return to strong underwriting profit.

GEICO’s recovery came as a result of measures like a 16% increase in average premium per policy, streamlined advertising expenses, and a 14% reduction in policies.

In contrast to GEICO’s strides, Fitch found that other carriers faced challenges in maintaining profitability.

Progressive was the only insurer besides GEICO to report a sub-100% combined ratio. Meanwhile, Kemper Corporation, Horace Mann Educators Corporation, and The Hartford Financial Services Group grappled with auto CRs above 110% during the first half of 2023.

The challenges facing US personal auto insurers

A surge in convective storm events across the US has had far-reaching effects throughout the insurance industry, Fitch said.

Auto insurers were not exempt from the impact of these weather events as incurred claims escalated and catastrophic losses accounted for 2% of 1H23 earned premiums versus the previous year’s 0.9%.

Additionally, Fitch noted an upswing in personal auto loss severity beginning in the latter half of 2021, driven by general inflation, higher costs for auto parts and repairs, escalating medical expenses, and increased costs for used vehicles.

Escalating litigation and settlement expenses have also contributed to the mounting pressure on insurers, the agency added.

Amid these challenges, major auto insurers reported significant severity increases in their latest financial results. Progressive and Allstate were among such carriers, reporting an 11% year-to-date increase in claims severity across all coverages.

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