AM Best Information Services

JULY 16, 2020 08:28 AM (EDT)

Best’s Market Segment Report: U.S. Personal Auto Line of Business Stuck in Neutral as Fewer Claims Offset Premium Loss

 Maxwell Gilberg
Associate Analyst
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David Blades, CPCU
Associate Director, Industry
Research and Analytics
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Christopher Sharkey
Manager, Public Relations
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Jim Peavy
Director, Public Relations
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OLDWICK - JULY 16, 2020 08:28 AM (EDT)
Reduced claim activity due to fewer cars on the roads is expected to offset the adverse effects of the COVID-19 pandemic on premiums in the personal automobile insurance line, according to a new AM Best report.

The Best’s Market Segment Report, “Personal Auto Stuck in Neutral as Fewer Claims Offset Premium Losses,” states that top-line written premium volume has dropped due in part to shelter-in-place orders instituted throughout much of the United States to stem the tide of the advancing pandemic. Furthermore, a large number of automobile insurers are providing some type of refund or discount program to policyholders during the pandemic, in addition to offering extended time to submit payments. The top 10 groups in terms of 2019 personal auto direct premiums written (DPW) announced plans for an estimated $6.5 billion in refunds covering the first two months, when the stay-at-home orders were implemented. However, the GDP decline, economic and financial market upheavals and reduced investment returns stemming from the pandemic are not expected to impact the aggregate financial strength of the segment significantly because of the compulsory nature of the product and the robust risk-adjusted capitalization of most writers in the segment.

AM Best’s stable outlook on the private passenger automobile insurance segment reflects the expectations that insurers’ strong overall performance in 2018 and 2019 will continue in 2020, owing to the high levels of unemployment and mileage driven that is expected to be much lower than in past years due to COVID-19. The consistently strong capital position of most personal automobile insurance writers, and continued effective use of technology and data analytics to augment underwriting, claims handling and ratemaking portray a segment on very solid footing. Ongoing innovation in all operational phases and in risk management will continue to benefit the segment as well.

Regulatory actions stemming from the COVID-19 pandemic could impact policy renewals, cancellations and forced coverage. Personal automobile insurers must pay close attention to legislative and regulatory changes in the states and jurisdictions of their policyholders to enable them to devise proactive strategies to deal with the changing landscape. Automobile insurers, including many of the industry leaders, have reallocated resources to refine their distribution strategies to improve the customer experience in purchasing policies and processing claims. AM Best will continue to monitor the impact that the pandemic will likely have on the servicing capabilities of automobile insurers.

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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 New York, London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City.