S&P Sees Car and Truck Insurers Confronting Rapidly Rising Claims Costs
October 13, 2021
higher costs to repair and replace vehicles will cause insurance
companies' underwriting profit margins to narrow significantly, projects
S&P Global Market Intelligence's annual US Auto Insurance Market Report.
Published by S&P Global Market Intelligence's Financial Institutions
Group (FIG) Research team, the report spotlights the unprecedented
effects of Covid-19 on the personal and commercial auto insurance
business. The analysis finds that the benefits from lower levels of
motor vehicle travel may be as fleeting as they were significant. The
number of automobile crashes is rebounding toward pre-pandemic levels,
and the average cost to settle claims, is rising as costs for motor
vehicle body work and used vehicles increase rapidly.
"Auto insurers provided estimated premium relief of as much as $16.4
billion to their customers in 2020 as Covid-19 curtailed commuting and
leisure travel," said Tim Zawacki, principal analyst for FIG at S&P
Global Market Intelligence. "In 2022, some of those customers may face
higher auto insurance rates as carriers respond to a return to normal
driving patterns and claims costs continue to climb."
Key highlights from the report include:
use of technology favors more stable and predictable auto insurance
results over the long term. The various ways that technology will
benefit the industry include increased consumer and trucker acceptance
of telematics and the continued deployment of advanced safety equipment
across the domestic vehicle fleet. But the industry must first navigate
near-term volatility related to the pandemic.
Combined ratios, the key measure of property and casualty industry
underwriting profitability, will normalize in the personal and
commercial auto insurance businesses in 2021 due to inflationary
pressures and the year-over-year increase in the number of vehicles on
the road. Over time, the outlook assumes resolution of the underlying
supply chain disruptions that are driving the rapid inflation.
Some auto insurers will continue to pursue sizeable rate increases in
response to the adverse claims trends. The report projects growth in
personal auto direct premiums written of 3.1% in 2021 and 5.4% in 2022.
Commercial auto premiums are projected to rise 14.2% in 2021 before
slowing to 8.4% in 2022.