Personal auto insurance in the US is still struggling despite an increase in the severity of claims: AM Best.
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According to a recent AM Best report, U.S. personal auto insurers faced another difficult period in the first half of 2023 as the severity of claims continued to rise.
am-best-logo The segment reported a direct incurred loss ratio more than three percentage points higher than the same period in 2022, following a poor performance in 2022.
The personal auto line of business saw a net combined ratio of 112.2 in 2022, a notable decline of almost 11 percentage points from the year prior.
In addition, the combined ratio for 2022 was roughly 10% lower than the line’s 10-year average and median combined ratio, translating into an astounding $33.1 billion underwriting loss.
The escalation in accident frequency, coupled with supply chain disruptions, economic inflation, and vehicle technology advancements, led to a rise in claims costs.
The number of cars on the road decreased as a result of the post-pandemic shift in workplace trends, which included an increase in work-from-home opportunities.
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The research does point out that these improvements have been countered by drivers’ increased distraction and reckless driving practices in recent years, which has worsened auto severity.
“Work-from-home arrangements have altered the dynamics, but driver inattentiveness and riskier driving habits have become more problematic, leading to a deterioration in auto severity,” stated Christopher Graham, Senior Industry Analyst at AM Best.
In 2022, the private passenger auto line’s net loss and loss adjustment expense (LAE) ratio increased by a noteworthy 13 percentage points, with the average cost per private
passenger car claims are increasing by 16% and are now over $10,000 per claim.
Carriers found it difficult to keep up with the increasing trends in loss frequency and severity, even in the first half of 2023, when direct premiums written increased by 12.9% year over year.
The difficult regulatory procedure for rate increases in different jurisdictions made it even more difficult for insurers to respond quickly to these problems.
Carriers are reviewing their personal auto portfolios and taking action to address selection and price adequacy concerns, according to David Blades, Associate Director at AM Best.
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However, insurers find it challenging to keep up with declining severity trends due to the drawn-out regulatory process for rate increases.
The study also showed that auto insurers with substantial technological investments to improve underwriting, pricing, and. In general, claims handling performed better than its peers.
AM Best anticipates that as insurers look for creative ways to get through these trying times, the industry will continue to adopt technology at an accelerated rate.
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