Bad times roll on for personal auto segment

The US personal auto insurance segment posted a direct loss for the first half that was more than three percentage points higher than the one recorded in the same period last year, according to AM Best.

2022 was the worst year in recent memory for US personal auto insurers, and results continued to tumble in the first half of 2023, according to a new report from AM Best.

The US personal auto insurance segment posted a direct loss for the first half that was more than three percentage points higher than the one recorded in the same period last year, according to the latest Best’s Market Segment Report, titled “US Personal Auto Results Worsen as Claims Severity Rises.”

According to the report, the 112.2 net combined ratio in 2022 for the personal auto line was a fall of almost 11 percentage points from 2021. It was also about 10 percentage points worse than the 10-year average and median combined ratios for the personal auto line. Overall, the personal auto segment posted a $33.1 billion underwriting loss last year.

According to AM Best, claims cost increases have been driven by inflation, supply chain disruptions and technological advances in vehicles. Rising claims costs, combined with increased accident frequency, have pushed loss costs to rise faster than rates.

Workplace patterns have changed post-pandemic with work-from-home arrangements, reducing the number of vehicles on the road,” said Christopher Graham, senior industry analyst, Industry Research and Analytics, at AM Best. “However, driver inattentiveness and riskier driving habits have become more problematic in the last few years, and as a result, auto severity has worsened.”

Personal auto loss severity drove a 13-percentage-point spike in the net loss and loss adjustment expense for the private passenger auto line of business in 2022, AM Best reported. The average cost per private passenger auto claim rose 16% last year, surpassing the $10,000 per claim threshold.

The deterioration of the direct loss ratio in the first half of 2023 occurred despite a 12.9% annual spike in direct premiums written, Best reported. With higher premium levels, however, carriers can reap some benefits from a lower underwriting expense ratio.

“AM Best-rated carriers have said they are reassessing their personal auto portfolios and implementing steps to address selection and price adequacy concern, but the time-consuming regulatory process for rate increases, which varies by jurisdiction, has made it difficult for insurers to stay ahead of deteriorating severity trends and address rate needs in real time,” said David Blades, associate director of Industry Research and Analytics, AM Best.

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