OLDWICK: As there were fewer vehicles on the roads, the underwriting profitability and pretax returns in the U.S. private passenger nonstandard automobile insurance segment through the first half of 2020 improved, suggests a report issued by global rating agency AM Best.
The report titled, “Events of 2020 Impacting Nonstandard Auto Market Performance,” states that the improvement thus far in 2020 follows improvement in 2019 when the nonstandard automobile composite’s ratios and measures bettered the average results of the last 10 years, despite consistent pressure due to loss severity.
Automobile claims frequency has declined slightly the last two years, and further improvement is likely over the near term owing to the sharp decline in miles driven because of the various impacts of the pandemic.
However, medical expenses and the cost of repairs of increasingly sophisticated vehicles continue to rise and show no signs of abating, which likely will lead to loss severity rising. The nonstandard automobile insurers followed for this report posted a first-half 2020 combined ratio of 97.3, following a full-year 2019 combined ratio of 101.0.
AM Best’s market segment outlook on the U.S. personal automobile segment, of which the nonstandard auto insurance market is a small part, is stable.
Annual direct premiums written for nonstandard automobile insurers have been growing for more than a decade, reaching $16.5 billion in 2019. Annualized growth through the first half of 2020 indicates a 4.3% rise in premium over 2019.
Nevertheless, AM Best anticipates that the premium refunds and rebates announced by automobile insurers as a result of the pandemic will have a limiting effect on top line premium during the second half of the year. AM Best does expect that the effects of the pandemic and insurer premium refund plans will be manifested more clearly in third-quarter and year-end results.
Due to the tough economic and medical conditions brought about by COVID-19, nonstandard automobile companies may need to step up efforts to prevent and uncover claims-related fraud. With the increase in the number of unemployed and social unrest possibly exacerbating the perils associated with high-risk areas, nonstandard automobile insurers need to be increasingly wary of the potential for greater fraudulent claims.
To navigate the confluence of additional risk factors brought on by the pandemic, private passenger nonstandard automobile insurers must apply even more stringent risk selection guidelines with disciplined underwriting and pricing strategies. Companies that collect and analyze more insightful data to inform their decision-making will likely outlast the competition.