S&P: Struggles in Personal Auto Insurance to Subside More Slowly Than Expected

By | November 20, 2023

S&P Global Market Intelligence projects that personal auto results will improve from 2022’s worst-in-decades combined ratio of 112.2%, though not as rapidly as the organization’s experts previously expected.

Continued pressure on claim severity across coverages has prolonged post-pandemic recovery for the personal auto business, and carriers will continue to implement large rate increases in the near term, S&P GMI shared in its latest U.S. Auto Insurance Market Report.

Tim Zawacki, principal insurance analyst at S&P Global Market Intelligence, said that the company’s “revised forecast for 2023 direct premiums written growth of 15.9% would easily surpass the previous 25-year-high rate of increase of 10.2% in 2003.”

“The post-pandemic return to normalcy has played out differently than most market participants envisioned,” he said.

“Stubbornly elevated crash severity has defied the longer-term trend, reflecting secular changes in working patterns and other factors that have resulted in more wrecks occurring at higher rates of speed.”

Zawacki said increases in severe auto crashes have precipitated a rise in litigated claims, which drive up costs. Severe weather and a surge in vehicle thefts have resulted in higher losses in comprehensive coverage. The industry has responded aggressively to deteriorating results with multiple rounds of sizable rate increases, he noted, but carriers’ ability to realign rates to reflect higher loss costs varies widely by geography.

“We continue to expect that they will eventually succeed in that initiative albeit over a longer timeline and with greater increases in premium rates than we had previously envisioned,” he said.

The 2024 S&P GMI outlook for direct premiums written growth of nearly 9.1%

in the personal auto business contemplates a continued tailwind from rate increases, particularly in states such as California, where pricing actions significantly

lagged the onset of the claims severity spike.

Beyond 2024, S&P GMI expects written premium growth rates to revert rapidly toward long-term historical averages in the mid-single digits, as experts anticipate that the predominance of six-month policy terms among most of the largest carriers will facilitate catching up to loss costs.

Topics Auto Personal Auto

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