The Rising Tide of Personal Auto Insurance Losses: A Comprehensive Analysis

The Financial Toll on Personal Auto Insurers

The second quarter of 2022 saw a significant downturn in the financial performance of the largest U.S. personal auto insurers, as reported by S&P Global Market Intelligence. Several factors are contributing to this trend, exerting upward pressure on premium rates as insurers' loss ratios continue to grow. The loss ratio, which represents the percentage of each premium dollar spent on claims, is a critical indicator of an insurer's financial health.

Factors Driving the Decline

The primary factors driving this negative economic performance include the increasing frequency and severity of accidents, more fatalities and injuries leading to increased attorney involvement in claims, ongoing supply-chain issues resulting in higher costs for autos, parts, and labor, and more expensive repairs due to the technological sophistication of modern vehicles. S&P reports that the private auto business's combined ratio, which represents the difference between claims and expenses paid and premiums collected, reached nearly 101.5 percent in 2021, up from 92.5 percent in 2020 and 98.8 percent in 2019. A combined ratio above 100 indicates a loss, which is projected to worsen in 2022.

The Impact of Pandemic-Related Trends

At the onset of the pandemic in 2020, auto insurers returned approximately $14 billion to policyholders in anticipation of fewer accidents due to economic lockdowns. While loss ratios briefly fell in 2020, they have since climbed steadily, exceeding pre-pandemic levels. With more drivers returning to the road in 2022, this trend is expected to continue. The severity of the post-pandemic riskiness of U.S. highways is illustrated by the fact that traffic deaths, after decades of decline, have increased in recent years due to more drivers speeding, driving under the influence, or not wearing seat belts. In 2021, U.S. traffic fatalities reached a 16-year high, with nearly 43,000 deaths.

For consumers, understanding these trends is crucial. It's advisable to shop around for the best rates, consider increasing deductibles to lower premiums, and maintain a clean driving record to avoid rate increases. Staying informed about changes in insurance policies and industry trends can also help in making informed decisions.