Increases in US P&C insurers’ underwriting expenses have been offset by commensurate increases in net premiums written, which has resulted in stable expense ratios over the past decade.
According to AM Best, over the past decade, US P&C insurers have found controlling underwriting expenses easier than selecting and pricing risks on a net basis.
Net underwriting results, reflected in P&C insurers’ net loss and loss adjustment expense ratio, have fluctuated due to risk factors that have elevated the incurred loss ratio in certain years.
Private passenger auto underwriters and workers’ compensation underwriters, have both been at the forefront of the industry’s push to use improved technology platforms and enhance operational efficiency in underwriting and claims handling.
Despite the increases in expenses, they have still risen at a slower rate than net premiums written.
Insurers have also sought to obtain profitable business through name recognition, mainly advertising and other underwriting expenses, primarily agents’ commissions.
A few companies making the greatest use of advertising are by far the leaders in advertising spending, as the five largest advertisers accounted for nearly 70% of all industry advertising in 2021.
Progressive, Allstate, Berkshire Hathaway, which owns GEICO, and State Farm all surpassed $1 bn in advertising expenditures and have a significant share of the highly competitive and compulsory personal auto market.
The top 20 companies with the highest advertising expenses as a share of premium, led by Elephant Insurance Company and Lemonade Insurance Company, 10 posted a return on equity below 10%.
A lower ROE is to be expected from insurtech startups, as they spend heavily on advertising to build market share.