Profitability metrics in the U.S. private passenger auto insurance segment showed notable improvement through third-quarter 2020 over the prior-year period, even though premium volume during the timeframe declined, according to a new AM Best report released March 4.
The new Best’s Market Segment Report, titled, Premium Volume May Be Down but Profits Could Expand for Auto Insurers, states that the loss ratio of private passenger auto insurers improved year over year by 9.2 percentage points to 57.3 percent through the third quarter of 2020. While fewer accidents due to a decline in the number of cars on the road and in miles driven during the pandemic-related lockdowns was a leading cause, fundamental improvements that personal automobile underwriters have made in recent years to enhance their focus on rate adequacy, improving auto repair management and making greater use of innovative measures were also primary factors. At the same time, fewer drivers also led to a 1.7 percent drop in direct premiums written through third-quarter 2020, compared with the same period in 2019. With the lower loss frequency, AM Best estimates a four percentage-point improvement, to 94.4 from 98.8, in the segment’s combined ratio for 2020.
Personal auto insurers at the start of 2020 benefited from a couple of years of positive underwriting and operating performance momentum. This reflected the robust risk-adjusted capitalization of most writers, in addition to the positive impact of technology and data analytics on their underwriting, ratemaking and claims handling.