Conning Corporation, a provider of asset management services to insurance companies and institutional investors based in Hartford, Conn., has predicted an increase in auto insurance premiums next year, reversing a trend in declining auto insurance rates that began in 1995.
A recent Conning & Company study showed personal automobile rates on the rise by 4 to 8 percent. In some areas, recent filings may bring the increase up to 16 percent, especially for nonstandard automobile coverages. Homeowner insurance premiums also are expected to increase by 6.9 percent in 2002. Despite the rise in premiums across all property/casualty lines, insurers will still be challenged to achieve profitability due to competition, escalating losses, increased expenses and a slowing economy.
According to the study, “Property-Casualty Forecast and Analysis,” inflation in medical services costs rose faster than the overall consumer-price-index (CPI) over the past couple of years, pushing losses upwards in virtually all casualty lines. The change in the CPI increased from 1.6 percent in 1998 to 3.4 percent in 2000. However, over the same period, the change in the CPI for hospital and related medical services rose from 3.1 percent to 6.2 percent, and increased a full point in January 2001 alone.
Other industry-wide pressures on the p/c sector include a hardening reinsurance market and increasing jury settlements in liability lines.
The Conning study reported on all p/c lines, including: personal auto, homeowners/farmowners, commercial auto, workers’ compensation, commercial multiperil, general liability, medical malpractice, fire and allied lines, and inland marine. Conning suggests that the push to sell personal auto insurance policies online may have contributed to an increase in loss ratios through poor classification of risk exposures. The Internet and the intense desire to land online sales has made it easier for consumers to provide inaccurate key rating characteristics in order to secure lower and, consequently, inadequately priced insurance.
Auto physical damage insurance premiums should continue to rise due to consumers’ preference for trucks and sport utility vehicles. The cost of repairing physical damages has jumped, due in part to an increase in the use of original equipment manufacturers rather than after-market parts.
Clint Harris, a Conning & Company vice president and author of the study, said insurers are faced with a great deal of uncertainty until medical cost inflation and increased losses due to litigation can be brought under control. Insurers will have a difficult time increasing premiums enough to overcome skyrocketing losses, according to Harris.
In addition to higher repair costs, homeowner premiums will have to increase in order to offset the rising reinsurance costs associated with catastrophes. Despite a relatively quiet 2000 in insured catastrophic losses, reinsurers are requiring higher premiums to make up for inadequately priced catastrophe losses both inside and outside of the U.S. Many home insurers will need to raise their coverage limits, and therefore premiums, for those policyholders who have made significant home improvements, which increased the value of their homes. The increases are necessary to counter shrinking insurance-to-value ratios.
For all p/c lines combined, Conning projects a marginal improvement in the combined ratios for 2001 and 2002. Commercial lines are more likely to see greater improvement sooner than personal lines.
A complete listing of all Conning Strategic Studies can also be found by visiting the company’s website at www.conning.com
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