Auto insurance

IQ Financial Advisor – Content Page

This story first appeared in FA-IQ’s sister publication P&C Specialist.

A sign of what 2023 has in store for the personal lines insurance industry, a high Travelers the executive predicts mid-teen auto price hikes for policyholders next year.

Executive Vice-President and President of Personal Insurance Michael Klein shared the estimate during a third-quarter earnings call with analysts. The rate hike is part of a broader plan by Top 10 personal insurers to mitigate underwriting losses as its auto combined ratios hit 105.4% in the third quarter from 91.3% in the third quarter. the same period last year. The carrier suffered a private auto underwriting loss of $340 million for the financial period, a reversal from an underwriting gain of $351 million in the third quarter of 2022.

Travelers President of Personal Insurance Michael Klein. Courtesy travelers.

While Klein was clear that prices would rise significantly, he also acknowledged that auto underwriting profitability would not happen overnight.

“We expect the change in the domestic auto renewal premium to reach double digits in the fourth quarter and be in the mid-teens throughout 2023,” Klein said on the call. “Written pricing is expected to reach adequacy in most states representing the majority of our business by mid-2023. And that pricing will impact our results over time.

By detailing price increases in the mid-teens, New York-based travelers stood out as being among the first to provide greater transparency on loss-mitigation strategies in 2023.

Meyer Shieldsgeneral manager at Keefe, Bruyette and Woods, said the mid-teens awards are “crucially important.” He noted that during the pandemic auto insurance companies made a lot of money because people were home and not driving. But, he added, that “almost changed by a penny in the middle of 2021 when the pilots came back”.

According to data from S&P Global Market Intelligence, approximately 8,730 people died in traffic accidents in the first quarter of 2021, an increase of 10.5% compared to the previous year period. The increase in accident severity impacted the second quarter results of many large insurers, as noted.

Along with an increase in accident severity, supply disruptions and soaring repair prices have made car insurance “phenomenal” unprofitable, Shields said, adding that the only way to effectively combat this is to raise car insurance prices.

“Fundamentally, if you want to get back to the acceptable margin for this business, you have to take this level of price increase,” he continued.

Rate hikes continue

Over the past year, carriers have become increasingly confident in their use of rate hikes to heal struggling combined ratios.

Allstate revealed that he would see a potential loss of up to $725 million for the third quarter, and he detailed his actions on the rising price front.

” In the month of September, [the] The Allstate brand implemented auto insurance rate increases of 16.2% across eight locations, resulting in a total impact on Allstate brand insurance premiums of 0.9%,” wrote the carrier in a press release.

The Fortune 100 company also noted that rate increases of 10.8% have been implemented since the start of 2022 company-wide. The increases have resulted in additional premiums of $2.6 billion since the start of the year, including $1.1 billion in the third quarter.

Further action required

Travelers are also busy making non-fare changes to improve profitability, according to Klein. During the call, he said the insurer was tightening underwriting criteria, restricting the binding authority of agents in some states and decreasing its presence in California and Florida.

Shields endorsed the carrier’s decision not to focus on California, saying travelers want to be competitive in the state but also don’t want to be unprofitable at a time when regulators are suspending fare increases .

“They might suffer a short-term loss because of the long-term benefits of adding another customer, but I don’t think they have that confidence,” he said.

Shields added that if he went to an independent state agent’s office looking for a new insurance policy, travelers probably wouldn’t show up because they’re not focused on growth. in California.

According to Shields, travelers could also tweak deductibles, marketing costs and how and to whom it advertises to ensure they aren’t stuck with less profitable deals.