US personal auto falls behind inflation curve as pricing efforts lag
US personal line auto carriers are falling behind the inflation curve, as a sluggish start to repricing and limited ability to put new rates into larger portions of the book at once leaves margins at the mercy of some double-digit inflation on key elements of the claims accounting.
“We think the industry still needs a significant amount of rate,” Wells Fargo's top insurance analyst Elyse Greenspan wrote in research. “The industry is not getting enough price to offset the higher loss trend.”
Tough talk on rates may have started mid-2021, but the industry only squeaked out 1.3% in average rate gain for the year before rising 6.6% in the first five+ months of 2022 on annual increases now near the 4.5% mark, she laments. So far, industry has only put increases into some 65% of personal auto premiums since getting serious mid-2021. In the stronger pricing move of 2022, many carriers have only been able to impact about a third of book.
“Personal auto loss trends remain elevated and the industry is not getting enough price to offset the higher loss trend.”
Loss cost inflation on repair has run at annual levels from 4.9 to 6.3% in recent months, but accompany readings near 15% on parts and equipment and low double-digits for new and used cars. Medical costs are the lone reprieve.
“With insurance pricing up 4.5% and severity continuing to rise, the spread between rate and loss costs continues to be negative (for the sixth straight month) and widened versus the prior,” Greenspan wrote of her calculations from May data.
That spread, based on severity alone, was last at 1.6% after running a range of 0.7 to 2.0% in the five months YTD.
The frequency side of the equation appears to show “moderating,” but with threat of upside going into the summer season, Wells Fargo analysts warn.
A notable portion of the problem appears tied to how quickly insurers can get new rates into larger chunks of its portfolio.
Progressive seems aggressive with YTD rate gains of 7.3% affecting a whole 90% of its book and with acceleration visible in May. Geico has the higher gain of 9.2% YTD via 77 regulatory filings, but only a third of the book impacted by those moves.
Mark Allstate with a 7.6% increase YTD affecting 35% of the book, The Hartford with a 7.1% gain on 30% of premium and Travelers with a 5.3% gain on 35% of the book. State Farm is the laggard, with limited growth in May holding YTD gains to 1.5% for 9% of premiums impacted.
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