A.M. Best Special Report: U.S. Personal Automobile Insurance Industry Facing a Challenging Road Ahead

OLDWICK, N.J.--()--The U.S. personal automobile insurance industry experienced net premiums written growth of 5.1% in 2015 to $192.8 billion from $183.5 billion in 2014; however, the industry is exhibiting signs of weakening underwriting and operating results, mainly driven by rising loss ratios, according to an A.M. Best special report.

The Best’s Special Report, titled, “Personal Automobile—A Challenging Road Ahead,” notes that personal automobile underwriting results generally have been stable. The market represents the largest component of the U.S. personal lines segment and is a critical line for many insurance companies, especially ones in the private passenger standard automobile composite, where personal automobile comprises over 90% of net premiums written (NPW). Nonetheless, underwriting profitability for the personal automobile industry has shown deterioration in recent years, as factors such as rising loss frequency and severity trends, increased competition and weakened economic conditions have all played key roles in the downturn. The personal automobile segment recorded a combined ratio in 2015 of 104.6, a deterioration of 2.2 points from the previous year.

Several of the leading writers of personal automobile insurance have been among the most profitable, although a high market share has not equated to strong level of profitability in all cases. The top 10 groups by NPW accounted for 72% of the industry’s net premium volume in 2015. The top five each generated more than $10.0 billion in personal automobile NPW. While just five of the top 10 groups produced five-year average combined ratios under 100%, most of the top 10 companies have demonstrated operating profitability by producing five-year average operating ratios well below 100%.

A.M. Best believes reversing the trend of worsening underwriting results in the face of current market headwinds will be a challenge for personal automobile insurers. While higher rates, improved pricing segmentation and claim initiatives may address some of the near-term financial pressure on the line, there are emerging issues that may have more consequential and structural impacts on the personal automobile market on a longer-term basis. Continued technological innovation, the evolution of autonomous vehicles, the rise of Uber and Lyft and the potential growth of non-traditional competitors are just a few of the developments that personal automobile insurance companies will need to grapple with in the upcoming years. Those companies that can execute on the blocking and tackling aspects of underwriting and claims over the near term, while incorporating the meaningful evaluation of emerging threats into their enterprise risk management framework, will be the most well-prepared for today’s automobile market, as well as the future one.

To access a copy of this report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=256986.

A.M. Best is the world's oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com.

Copyright © 2016 by A.M. Best Rating Services, Inc. and/or its subsidiaries. ALL RIGHTS RESERVED.

Contacts

A.M. Best
Michael Venezia, +1 908 439 2200, ext. 5034
Senior Financial Analyst
michael.venezia@ambest.com
or
Christopher Sharkey, +1 908 439 2200, ext. 5159
Manager, Public Relations
christopher.sharkey@ambest.com
or
Greg Williams, +1 908 439 2200, ext. 5815
Senior Director
greg.williams@ambest.com
or
Jim Peavy, +1 908 439 2200, ext. 5644
Director, Public Relations
james.peavy@ambest.com

Contacts

A.M. Best
Michael Venezia, +1 908 439 2200, ext. 5034
Senior Financial Analyst
michael.venezia@ambest.com
or
Christopher Sharkey, +1 908 439 2200, ext. 5159
Manager, Public Relations
christopher.sharkey@ambest.com
or
Greg Williams, +1 908 439 2200, ext. 5815
Senior Director
greg.williams@ambest.com
or
Jim Peavy, +1 908 439 2200, ext. 5644
Director, Public Relations
james.peavy@ambest.com