Fitch: Car Insurers to See ‘Modest Underwriting Gain’ This Year

After five straight years of underwriting losses, coverage providers will see a small bump in 2013 due to continuing rate increases and a more normalized environment of disaster losses, according to predictions from Fitch Ratings about the U.S. car insurance sector.

The “moderate” underwriting loss in 2012 was dragged down by a surge of claims in the year’s final quarter related to Superstorm Sandy, which struck states in the Northeast last October. While auto insurance carriers have reported closing nearly all Sandy-related claims by now, the disaster’s impact on company financials was evident.

According to Fitch, Sandy brought more flood-related auto insurance claims than past disasters because it centered on “densely populated areas” like New Jersey and New York. Auto coverage providers reported that much of those were total-loss claims for vehicles rendered inoperable after being flooded in seawater.

Without being burdened by the atypical nature of losses from Sandy and facing a “more normal catastrophe environment,” the nation’s personal car coverage sector will likely see a “modest underwriting gain in 2013,” according to Dafina Dunmore, director of the Insurance Group at Fitch.

Dunmore also said that the “past several years” have seen “an increased number of tornadoes, hailstorms, high winds and other catastrophe events.”

Rising Prices, Loss Severity Likely to Continue

U.S. auto premium rates have been “rising steadily” in past years, according to Fitch, which cited data from MarketScout Corp. showing that this year’s February rates were 3 percent higher than previous-year rates.

Lower-than-expected returns on investments, higher loss costs, and low interest rates “are fueling the need for higher premium rates,” Fitch stated in its report.

The agency predicted a “further hardening of rates during 2013.”

Fitch also identified an acceleration in claims sizes, which were “near flat” in 2010, rose modestly in 2011 and saw “mid-single-digit increases” in 2012.

Changes in the cost of medical care are important when examining increasingly costly claims, said Dunmore, who cited Bureau of Labor Statistics data showing that medical care costs increased 3.1 percent for the 12-month period ending January 2013. That increase contributes to “higher bodily injury claim costs” for car insurers.

Included in Fitch’s report was an analysis from Hanover Insurance Group, which linked increasing claim severity to “longer duration and slower development of claims due to litigation in a depressed economy.”

The rising severity—or size—of car insurance claims will likely trend through this year, Dunmore said, “given that medical inflation continues to outpace general inflation.”

Meanwhile, the rate at which policyholders filed claims was “flat to down” in recent years, according to Fitch, which pointed to several factors including high unemployment rates and gas prices and fewer miles driven by American motorists.

An Overview of Major Carriers

As one of the P/C industries “most competitive segments,” the personal auto coverage market last year saw companies yield results that were “quite mixed,” Fitch said.

While its underwriting results showed a yearlong loss by the end of 2012, State Farm showed “notable” improvement in those results and still owns most of the market with about one-fifth of all U.S. auto premiums.

The moderate level of the 2012 underwriting loss for car insurers nationwide was buoyed “largely due to the improvement posted by State Farm,” according to Fitch.

Although the insurer’s personal auto lines could not do better with underwriting, the results were typical.

“Its last underwriting gain in the auto line of business was in 2005,” the agency said.

About Charles Nguyen
Charles Nguyen is an enterprising journalist who reported for and the Desert Dispatch and was the editor in chief of the Guardian (the twice-weekly newspaper at the University of California, San Diego) before coming to Online Auto Insurance News.

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