AM Best Information Services

NOVEMBER 15, 2021 08:51 AM (EST)

Best’s Market Segment Report: Inflation & Loss Severity Counteract Tailwind from Pandemic Recovery for Nonstandard Insurers

 David Blades
Associate Director, Industry
Research and Analytics
+1 908 439 2200, ext. 5422

Kenneth Tappen
Senior Financial Analyst
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Christopher Sharkey
Manager, Public Relations
+1 908 439 2200, ext. 5159

Jim Peavy
Director, Communications
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OLDWICK - NOVEMBER 15, 2021 08:51 AM (EST)
A return to pre-pandemic norms in the U.S. nonstandard auto insurance segment, with greater loss-cost pressures along with elevated inflation and supply chain issues, may counteract recent positive market trends, according to a new AM Best report.

The Best’s Market Segment Report, titled, “Inflation and Loss Severity Counteract Tailwind form Pandemic Recovery for Nonstandard Auto Insurers” states that direct premiums written rose by 11% in the first quarter of 2021 and 13% in the second, compared with the same periods in 2020, representing the highest quarterly percentage gains since the start of 2018. AM Best, which has a stable market segment outlook on the private passenger nonstandard auto (PPNSA) segment, is estimating direct premium of $17.8 billion for 2021, which would represent a year-over-year 7.2% increase. The segment’s combined ratio for 2020 was 99.6%, a 1.4-percentage-point improvement from 2019, driven in large part by decreased loss frequency from reduced miles driven due to the COVID-19 pandemic.

However, the report notes that whether the premium momentum of first-half 2021 will last through the rest of the year remains uncertain. Although an economic recovery and reduced unemployment should continue to propel premium growth, worsening results through first-half of 2021 due to loss cost pressures indicate that recent positive trends have ceased.

Additionally, according to the report, higher fraudulent claims costs, which remain a major issue for carriers and is due mainly to the inherent complexities of insuring higher risk, has weakened underwriting

profitability in the PPNSA composite. Nonstandard auto companies may need to step up their efforts to find the right mix of technology and infrastructure to help thwart fraud attempts. Companies lacking these capabilities may find themselves more vulnerable, and potentially, at a competitive disadvantage.

In addition, efficient technology platforms with extensive, highly credible data sets and multivariate rating analyses have helped some of the large national private passenger auto insurers expand their presence in the nonstandard market. The resulting competitive pressure on smaller writers in the PPNSA composite has prevented some from remaining in the market. With the nonstandard market seeing accelerated growth at the same time, merger and acquisition activity likely will increase.

To access the full copy of this market segment report, please visit .

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.