III: Private Auto Insurance is the Biggest Source of Industry Profits

Corporate buildingsDespite a poor economy that has kept premiums flat for several years and natural disasters that have cut net income, private auto insurance is easily the most profitable line of coverage in the U.S., according to a new report from the Insurance Information Institute (III).

The $165 billion in direct premiums written to insure private vehicles in 2010 represented 36 percent of the market and dwarfed the $68.2 billion in direct premiums written on homeowner policies, which made up 15 percent, the report states.

Private passenger vehicle coverage is now “by far the largest line of insurance and is currently the most important source of industry profits,” according to the report, which is available on the III website.

Personal lines—including both private auto and homeowner coverage—made up a combined 51 percent of the market, overtaking commercial coverage, which saw $226.8 billion, or 49 percent of direct premiums written.

The report attributes much of the heightened importance of private car policies to negative trends affecting other lines.

Net written premiums for private auto coverage increased by just 2.8 percent from 2000 to 2010, due to the weak economy affecting sales of new vehicles and the types of vehicles sold, researchers said. Those increases were outpaced by 6.4 percent growth for homeowner premiums and a 3.6 percent increase across all lines.

But the report points out that the profitability of other coverage types has fallen in recent years, with net written premiums for commercial vehicles down 22 percent since 2005 due to a soft market.

And while homeowner coverage has grown faster than private auto insurance, it remains less lucrative. That is due, at least in part, to large losses caused by natural disasters, which industry experts say have had a greater impact on residential policies.

The U.S. saw $25 billion in insured losses as a result of more than 100 weather-related catastrophes in the first half of this year.

Those figures are in keeping with other recent research that says severe weather events have inflicted steep losses on insurers this year.

According to an analysis released this week by credit rating agency A.M. Best, natural disasters from January through September cost property and casualty insurers an estimated $38.6 billion in pretax, total net losses. That was nearly twice the amount lost to catastrophes in all of 2010.

Among the costliest storms was Hurricane Irene, which struck the East Coast in late August, causing $7.3 billion in insured losses as coverage providers were forced to settle damage claims on everything from North Carolina homeowner policies to Maine car insurance coverage.

About Matthew Morisset
Matthew Morisset is a proud alumnus of the University of Redlands, where he obtained a degree in English Literature. Utilizing his passion for analysis and writing, Matthew looks for important trends in the auto insurance industry and their implications for consumers and the market as a whole.

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