U.S. personal auto insurers faced another challenging period in the first half of 2023, as claims severity continued to rise, according to a recent report by AM Best.
Following a dismal performance in 2022, the segment posted a direct incurred loss ratio more than three percentage points above the same period in 2022.
In 2022, the personal auto line of business experienced a 112.2 net combined ratio, representing a significant deterioration of nearly 11 percentage points from the previous year.
The combined ratio for 2022 was also approximately 10 percentage points worse than the 10-year average and median combined ratios for the line, resulting in a staggering $33.1 billion underwriting loss.
Economic inflation, supply chain disruptions, and advancements in vehicle technology contributed to increased claims costs, exacerbated by a rise in accident frequency.
The shift in workplace patterns post-pandemic, with increased work-from-home arrangements, reduced the number of vehicles on the road.
However, the report highlights that driver inattentiveness and riskier driving habits in recent years have offset these changes, contributing to a worsening auto severity.
Christopher Graham, Senior Industry Analyst at AM Best, noted, “Work-from-home arrangements have altered the dynamics, but driver inattentiveness and riskier driving habits have become more problematic, leading to a deterioration in auto severity.”
The net loss and loss adjustment expense (LAE) ratio for the private passenger auto line saw a significant 13-percentage-point increase in 2022, with the average cost per private passenger auto claim surging by 16%, surpassing the $10,000 per claim threshold.
Despite a 12.9% year-over-year increase in direct premiums written in the first half of 2023, carriers struggled to keep up with the escalating loss frequency and severity trends.
The challenging regulatory process for rate increases in various jurisdictions further hindered insurers’ ability to address these issues in real time.
David Blades, Associate Director at AM Best, stated, “Carriers are reassessing their personal auto portfolios and taking steps to address selection and price adequacy concerns. However, the time-consuming regulatory process for rate increases has made it difficult for insurers to stay ahead of deteriorating severity trends.”
The report also highlighted that auto insurers who had invested significantly in technology to enhance underwriting, pricing, and claims handling generally outperformed their counterparts.
AM Best expects the accelerated pace of technology adoption in the industry to continue as insurers seek innovative solutions to navigate these challenging times.
