US auto insurers recorded an underwriting loss of $4bn

US private auto insurers recorded an underwriting loss of more than $4bn in 2023, and with a rapidly worsening loss ratio, analytics expects that carriers’ operating margins will continue to be squeezed in the near term.

According to a report from AM Best, cites inflationary pressures, supply chain challenges, and costly repairs of technologically advanced autos combining to further hinder profit margins for US personal auto insurers.

Despite the best efforts of carriers to pursue rate increases and use available pricing tools more prudently, personal auto insurers are finding it hard to stay ahead of deteriorating severity trends.

Direct incurred loss ratio through the first half of 2023 deteriorated by more than 13pp compared with the first half of 2022.

Full-year 2022 underwriting results for private passenger auto insurers show a reversal of favourable trends in 2018-2020 and during the pandemic, with Best adding that since then, inflationary pressures, supply chain disruptions, and corresponding rate adequacy issues have adversely affected claims costs.

The average cost per private passenger auto claim increased by 14% in 2023 over the prior year, reaching almost $10,000 per claim.

Changing driving habits are among some of the fundamental causes of the rise in personal auto losses. More drivers speeding, operating under the influence or driving without seat belts have contributed to higher claims severity, in addition to other factors.

Market outlook on the U.S. personal auto segment, of which the nonstandard auto market is a small part, to negative due to deterioration in its reported results.

Despite most personal auto carriers maintaining robust capitalisation and sufficient liquidity, AM Best observes the segment’s ability to return to underwriting profitability is not expected given persistent high loss costs.

by Nataly Kramer