Best’s Market Segment Report: Myriad Factors Unsettling U.S. Private Passenger Auto Insurance Market

OLDWICK, N.J.--(BUSINESS WIRE)--After posting substantially higher profits in 2020, the U.S. private passenger auto insurance market has seen loss costs and other pressures rise sharply in 2021, even though the number of drivers on the road and related exposures have not returned to pre-pandemic levels, according to a new AM Best report.

The Best’s Market Segment Report, titled, “Myriad Factors Unsettling the U.S. Private Passenger Auto Insurance Market,” states that despite the substantial return of premium, which exceeded the total for the last four years combined, and an increase in policyholder dividends, the private passenger auto insurance segment had its most profitable year of the last decade in 2020. Bolstered by lower claims activity in 2020, the improvement in auto insurers’ underwriting profitability flowed to bottom-line operating profitability. Net profits reached nearly $33 billion, up substantially from $21.4 in 2018 and $17.5 billion in 2019. The 2018-2020 profit margins were the widest of the past decade and may be due to improvements in underwriting, risk selection and effective claims handling, in addition to tangential effects of the pandemic. Additionally, the segment’s loss ratio for the first half of 2021 was lower than that recorded during the same prior-year periods of 2017-2019.

AM Best’s current market segment outlook on the U.S. personal auto segment is stable. However, a number of factors are creating significant upward pressure on auto insurance pricing. These factors include rising inflation and supply chain shortages; the cost of claims owing to higher costs for parts or vehicle market values; an improving economy; more careless and dangerous driving behavior; rising injury and vehicle costs due to severe supply; demand imbalances; and pandemic-related global shipping challenges.

Inflation will continue causing a rise in average severity. Should the cost of vehicle replacement outpace the cost of repairs, more vehicles will be repaired instead of being declared total losses. As a result, these factors will lead to an increase in loss costs for personal auto insurers and pressure their ability to underwrite coverage profitably. AM Best also expects that policyholder dividends and the private passenger auto line’s underwriting expense ratio will return to historical levels in 2021.

To access the full copy of this market segment report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=314864.

A video discussion about this report with Christopher Graham, senior industry analyst, AM Best, also is available at http://www.ambest.com/v.asp?v=ambpersonalauto1121.

AM Best is a global credit rating agency, news publisher and data analytics provider specializing in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more information, visit www.ambest.com.

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