Inflation and severity of losses could dampen positive dynamics in non-standard auto market


Players in the US non-standard auto insurance segment may find that the return to pre-pandemic standards, with greater loss cost pressures as well as high inflation and supply chain issues, can counteract recent positive market trends, reports AM Best.

Additionally, smaller market players may find it increasingly difficult to compete with larger players due to their technological and analytical advantages. It could mean more mergers to come.

Best’s market segment report, titled “Inflation and Loss Severity Counteract Tailwind form Pandemic Recovery for Nonstandard Auto Insurers,” indicates that direct written premiums increased 11% in the first quarter of 2021 and 13% in the second, compared to the same periods. in 2020, which represents the highest quarterly percentage gains since the start of 2018.

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AM Best, which has a stable market segment outlook in the non-standard passenger car segment, estimates a direct premium of $ 17.8 billion for 2021, which would represent a 7.2% increase year over year. the other. The segment’s combined ratio for 2020 was 99.6%, an improvement of 1.4 percentage points from 2019, largely due to a decrease in claims frequency due to reduced kilometers driven due to the COVID-19 pandemic.

However, the report notes that the continuation of the premium momentum from the first half of 2021 through the rest of the year remains uncertain. While an economic recovery and lower unemployment are expected to continue to propel premium growth, the deterioration in results through the first half of 2021 due to claims cost pressures indicates that recent positive trends have ceased.

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In addition, the report found that the higher costs of fraudulent claims weakened the profitability of underwriting in the AM Best composite of writers of non-standard automobiles for private passengers. “Non-standard automakers may need to” step up their efforts to find the right mix of technology and infrastructure to help thwart fraud attempts. “Firms that do not have these capabilities can find themselves more vulnerable and potentially at a competitive disadvantage,” the report says.

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In addition, AM Best believes that effective technology platforms with comprehensive and highly credible data sets and multivariate rating analyzes have helped some of the large domestic private auto insurers to expand their presence in the non-standard market. However, the resulting competitive pressure on smaller writers has prevented some from staying in the market. With the non-standard market experiencing accelerated growth at the same time, M&A activity is likely to increase, AM Best predicts.

Source: AM Best

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