Profitability improved in the US private passenger auto insurance segment in the third quarter of 2020, although premium volume declined, according to a new report from AM Best.
The loss ratio of private passenger auto insurers improved by 9.2 percentage points year-over-year to 57.3%, according to the new Best’s Market Segment Report. The improvement was largely driven by a reduction in accidents due to a pandemic-induced reduction in the number of cars on the roads and miles driven. Other prime factors were improvements that auto underwriters have made in recent years to enhance their focus on rate adequacy, improving auto-repair management and making greater use of innovative measures, AM Best said.
At the same time, the reduction of drivers on the road also led to a 1.7% drop in direct premiums written through Q3 compared to the same period in 2019. With the lower loss frequency, AM Best predicted a four percentage-point improvement in the segment’s combined ratio for 2020, from 94.4 to 98.8.
At the start of last year, personal auto insurers 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 and the positive impact of technology and data analytics on their underwriting, ratemaking and claims handling, AM Best said. These factors, along with the unexpectedly positive impact of COVID-19 on auto travel, improved the sector’s profitability significantly.
Twenty-one insurers generated more than $1 billion in private passenger auto direct premiums through the third quarter. However, for 10 of those 21, their topline premium showed a decline compared with the prior-year period. Three experienced premium growth of 1% or less, and most of the sector’s leading auto insurers offered premium discounts, rebates, or refunds during the COVID-19 surge.
US roads are expected to remain less congested than normal for an indeterminate period in 2021, which could extend the favorable loss frequency trend, AM Best said. However, cars traveling at faster speeds on less congested roads can cause more serious accidents, increasing the severity of claims.