Tuesday, 18 August 2020 21:38

Analysts Predict Trouble Ahead for Personal Auto as Claims Volume Returns to Normal

Written by Jim Sams, Claims Journal


Insurers are making a bundle on personal auto because claims have plummeted, but the long-term outlook for the line isn’t so rosy, analysts say.

Fitch Ratings last week reported the short-term performance for auto insurers is “unsustainable, and we expect profit challenges in the future as regulatory and competitive pressures hinder any rate increases when losses return to historical norms.”


A report by Deloitte also predicts declining premiums, but made no projections about profit margins.


Fitch was pessimistic enough to revise its fundamental sector outlook for the personal auto line to negative. Fitch said it expects a decline in investment and operating performance as claims frequency returns to more normal levels.


At the same time, Fitch affirmed the stable rating for the property and casualty and reinsurance sector, “given the capital strength for the vast majority of insurers to withstand the pandemic fallout.”


Fitch said U.S. insurers have given $12 billion in rebates to policyholders this year and that number continues to grow. But declining claim numbers are producing far more in savings. Personal auto claim frequency during the first quarter of 2020 dropped by 27% to 30% for Allstate, GEICO and Progressive, while claim severity increased by 9% to 14%.


Fitch said the average combined ratio for eight personal auto carriers that report financial results using Generally Accepted Accounting Principles was a “highly profitable” 85.5% during the first quarter, compared to 92% in the first quarter of 2019.


On the other hand, driving activity is increasing and claim frequency will eventually more toward traditional levels, while “loss severity moves perennially upward for auto insurance,” Fitch said.


At the same time, auto insurance rates are dropping. “Underwriters’ regulatory rate filings widely portend further premium reductions in the near term, which will lead to further industry auto revenue declines,” the ratings house said.

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