US insurers warned their lucrative retail clients will price shop as rates soar: BofA
Insurers have been warned that many of their previously loyal and profitable US retail insurance clients will shop around for better deals in 2022 prompted by a double whammy of price hikes on both their automotive and homeowner policies.
That is according to analysts at Bank of America who warn of a shift in the industry leader board as "these high-value, multi-policy bundlers rarely shop in great numbers," BofA analysts say.
But shopping they will go, driven by a rare double-whammy hit to both the automotive and homeowner sides of their policies, the analysts suggest.
They’re the cream of the crop: working families too busy to hunt down individual bargain deals for auto and home and who readily tack on added coverage for boats, recreational vehicles, travel and more. And with kids in the back seat, they are often some of the country's most risk-averse clients.
To date, they’ve most often been spared major price shocks as prices have moved independently on the auto and homeowners’ side of the business. And much more modestly.
This time is different.
"With homeowners' prices rising and auto insurance prices seeming to rise in harmony, the bundled customer is likely to see a notable increase in the price of the policy," BofA analysts wrote.
"Sticker shock for a lot of customers - for a lot of the best bundling customers - is going to drive them to shop for a better deal."
On the automotive side, the price shock won't result so much from the much-awaited return of frequency as lockdown-drivers hit the road. Instead, the "much more shocking trend" is the run-up in claims costs.
The two-year inflation rate embedded in the Mannheim Index for used vehicles was rising 10 percentage points per month towards end-2021 to nearly 70% by November. With policy prices going the other way to even toy with deflation, BofA sees some of the worst underwriting margins in 20 years.
Some say that US state regulators won't easily allow for a quick move on rates. To those naysayers, BofA says given current margins, insurers will move fast on the file-then-use system. Regulators who seek an orderly and competitive market, will have little choice as the margin data flows in.
The (market contrarian) upshot: "The hardest market for personal auto insurance in at least 20 years" is on its way.
The concurrent story in homeowners' pricing is also one of pinched margins, chiefly as the ongoing success of monoline automotive insurers Geico and Progressive left multiline insurers all-house, no-car. That's been a recipe for nat cat exposure.
Building their argument on Allstate and Travelers, BofA analysts consider homeowner margins "the worst they've been in two decades" and policies remain underpriced despite 5 to 9% compound annual gains in recent years.
"From our vantage point, 2022-2023 has to potential to be an incredible market for best-in-class operations to take personal lines market share; however, the potential quality and lifetime value of new customers may be notably higher than in previous cycles with auto and home bundles up for grabs."
Did you get value from this story? Sign up to our free daily newsletters and get stories like this sent straight to your inbox.
