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In an industry once marked by stability, personal auto insurance is now confronting a drastic shift — transitioning from longstanding profitability to significant losses. 📉
Let’s dig into some numbers and decisions shaping this new era:
Who❓
Personal auto insurance companies like State Farm and Allstate.
What❓
Main Issue: The personal auto insurance industry is facing significant losses.
Financial Indicators: S&P Global reports a startling combined ratio of 111.8 for 2022 in the personal auto insurance line, indicating an underwriting loss of $11 for every $100 collected in premiums.
Rate Hikes: In response to these losses, insurers are implementing double-digit rate increases.
When❓
The shift has become increasingly dramatic post-COVID.
This is the highest combined ratio in nearly 30 years.
Why❓
Vehicle and car part theft is trending upwards with more than 1M cars stolen and 53K catalytic converters replaced by insurers in 2022.
Increased accident severity due to factors like distracted driving and speeding.
Advanced automobile technologies are leading to higher repair costs.
General labor shortages, especially limited qualified auto technicians.
Post-COVID-19 changes in driving patterns:
Between January 2020 and January 2022, the proportion of new vehicles sold above the manufacturer-suggested retail price (MSRP) skyrocketed from 0.3% to 82.2%, leading to increased costs for insurers in replacing totaled cars.
And, of course…inflation.
How❓
The industry is responding by:
Implementing double-digit rate increases.
Ditching states like California and Florida where the risk of storms and wildfires is high.
Overhauling their operational models and risk assessments.
What Now❓
According to AM Best, the combined ratio is projected to decrease to around 106.5 in 2023, suggesting that the higher rates might be helping cover costs.
New car prices are beginning to calm down as manufacturing returns to pre-pandemic levels.
There's hope for stabilization, but consumer and regulatory tolerance for rate increases will be crucial.
