Commentary/Opinion
Unprofitable Insurance—Tail Effect Hits Auto Lines | Insurance Innovation Reporter
Carriers must balance profitability with growth and market share capture strategies, but thus far, there are no signs of such a reversal—and the tail effect is just beginning to unfold.
Alan Demers and Stephen Applebaum discuss the insurance “tail” effect caused by mounting claims, reserve adjustments, rate setting and underwriting actions.
“Carriers must balance profitability with growth and market share capture strategies in a highly competitive space and may possibly pull back on underwriting actions as rates restore profits. Thus far, there are no signs of such a reversal and the tail effect is just beginning to unfold”.
*As published in Insurance Innovation Reporter
Auto Insurance Costs Seen Rising Further With Trump Tariffs - Bloomberg
- About 60% of replacement parts to fix cars in US are imported
- Trump announced more tariffs on US trading partners this week
Auto insurance is poised to become even more expensive under President-elect Donald Trump’s plan to impose new tariffs on top US trading partners.
About 60% of replacement parts used to repair cars in the US are imported, mainly from Mexico, China and Canada, said Bob Passmore, a vice president for the American Property Casualty Insurance Association. New tariffs would increase the cost of parts, which account for about 40% of the average total repair bills borne by insurers, and would prompt them to eventually increase rates, he said.
“A broad tariff on auto parts would create a problem — it would definitely have an impact,” Passmore said in an interview. “Ultimately, the cost of claims is the primary driver of what we pay for our insurance.”
News
Progressive total loss class action results in $61M settlement
Progressive Marathon Insurance Company and Progressive Michigan Insurance Company have agreed to pay a $61 million settlement for two proposed class action lawsuits.
Class members have until December 6 to submit a claim form for benefits of the settlement.
The class actions were filed in Michigan state court in 2019 and 2022, respectively, and both allege that Progressive Marathon and Progressive Michigan breached the terms of their insurance policies. The alleged breach involves failing to include sales tax, title fees and registration transfer fees when calculating the actual cash value of total loss vehicle claim payments.
Those covered under the settlement include anyone insured under a Progressive Michigan auto insurance policy in Michigan who made a first-party claim for physical damage or theft of a vehicle and received a total loss claim payment between July 18, 2016, and July 22, 2024.
It also includes those in Michigan insured under a Progressive Marathon auto insurance policy who made a first-party claim for physical damage or theft of a vehicle and received a total loss claim payment between July 18, 2013, and July 22, 2024.
New York fines Geico $9.8 million over data breach
The New York Attorney General’s office fined car insurance company Geico $9.75 million on Monday for hacks that obtained personal information on 116,000 drivers in the state.
The attorney general and state Department of Financial Services said Geico and Travelers Indemnity Company violated state data protection rules by failing to implement policies that would protect customers’ information.
Both companies were hacked during the COVID-19 pandemic, amid a wave of cyberattacks seeking information such as drivers license numbers for use in fraudulent unemployment claims, the agencies said.
Research
Primary Point of Impact Contributing to Differences in Claims Severity for Battery Electric and Internal Combustion Engine Vehicles
Mitchell, an Enlyte company and leading technology and information provider for the Property & Casualty (P&C) claims and Collision Repair industries, today announced the release of its Q3 2024 Plugged-In: EV Collision Insights report. This issue provides an overview of the point-of-impact and severity differences between repairable battery electric vehicles (BEVs) and automobiles with an internal combustion engine (ICE).
Collisions involving front-end impact are the most common and 40% costlier, on average, than those involving rear-end impact. Based on Mitchell data, ICE vehicles have a higher frequency of front-end impact (31.59%) versus BEVs (25.88%), which are more likely to sustain rear-end damage (35.98%) than ICE alternatives (27.57%).
"There's a direct correlation between the primary point of impact and claims severity," said Ryan Mandell, Mitchell's director of claims performance. "Even though overall severity remains higher for BEVs than for ICE vehicles, understanding these point-of-impact dynamics can help auto insurers better assess risk, manage claims and assist policyholders."
Among the other notable findings in the Q3 2024 report:
- Claims Frequency and Severity: Claims frequency for repairable collision-damaged BEVs rose to 3.01% in the U.S. and 3.97% in Canada last quarter, an increase of 47% and 26% respectively year over year.
- Average claims severity in the U.S. was $5,560 for BEVs, $5,229 for plug-in hybrids, $4,426 for mild hybrids and $4,741 for ICE vehicles. In Canada, it was $6,923 for BEVs, $6,171 for plug-in hybrids, $6,366 for mild hybrids and $5,615 for ICE automobiles.
- Total Loss Market Value and Frequency: As price parity increases between BEVs and ICE vehicles, it is creating similarities in total loss outcomes. The average total loss market value for BEVs was $32,718 in the U.S. and $41,380 in Canada.
For 2021 and newer ICE vehicles—which are comparable to BEVs in their complexity and cost to repair—it was $31,070 in the U.S. and $42,498 in Canada. Total loss frequency was also nearly identical between automobile types with BEVs totaling at a rate of 9.9% in the U.S. and 10.11% in Canada while newer ICE vehicles totaled at a rate of 9.98% in the U.S. and 11.74% in Canada.
Financial Results
P&C industry posts best Q3 combined ratio in 9 years on personal lines strength
A strong recovery in personal lines led the US property and casualty industry to generate its first statutory net underwriting profit in a third quarter since 2019 and its largest in a third quarter since 2015.
The US property and casualty (P&C) industry swung to a net underwriting gain of $1.73 billion and a combined ratio of 98.1% in the third quarter from an underwriting loss of $7.33 billion and a combined ratio of 101.7% in the year-ago period, according to an S&P Global Market Intelligence analysis of newly released statutory financials. Its cumulative third-quarter net underwriting losses from 2020 through 2023 approached $37.23 billion, reflecting the impact of hurricanes and loss-cost inflation in the private-passenger auto and homeowners insurance business lines.
A turnaround in the private auto business helped put the industry back into the black from an underwriting standpoint. We calculate a direct incurred loss ratio of 64.5% in private auto, down from 74.8% in the year-earlier period and the lowest such result in any quarter since the first quarter of 2021. The homeowners business produced a direct incurred loss ratio of 66.8%, down from 81.0% in the third quarter of 2023, despite the landfall of Hurricane Helene at the end of September.
Best’s Market Segment Report: US Personal Auto Results Show Significant Improvement; Drive Market Segment Outlook to Stable
Underwriting results in the U.S. private passenger auto insurance segment has shown further stabilization in first-half 2024 following improvements in 2023, according to a new AM Best report.
Due to the improved segment performance and other factors, AM Best has revised its outlook on the personal auto segment to stable from negative.
“Private Passenger Auto: On the Road to Recovery”
According to the Best’s Market Segment Report, “Private Passenger Auto: On the Road to Recovery,” the personal auto segment’s direct physical damage loss ratio in first-half 2024 decreased 16 percentage points over the same prior-year period to 63.2 as carriers continued to take steps to address prevailing loss frequency and severity trends. Additionally, the direct incurred loss ratio for personal auto liability insurers also fell to 71.1, compared with 75.6 in first-half 2023.
The overall underwriting result for the private passenger auto line of business in 2023 was still negative, with a net $16.9 billion loss for the year; however, this result was approximately half the net underwriting loss of $33.2 billion in 2022.
InsurTech/M&A/Finance💰/Collaboration
11 biggest global insurtech equity deals in the third quarter | Digital Insurance
The three largest global insurtech equity deals in the third quarter had an average funding round of more than $150 million. These three deals earned an average of 17.73% of their total funding in the quarter. In total, all 11 of the top insurtech equity deals in the third quarter earned $719 million in funding.
Read more about the ten biggest global insurtech equity deals in the third quarter
Climate/Resilience/Sustainability
Insurance protections for greenwashing and ESG claims
As of November 1, the NOAA reports there have been 24 weather events with losses exceeding $1 billion each this year in the United States – this isn’t far behind the record set in 2023 of 28 billion-dollar disasters.
Of course, an increase in natural disasters is not a problem unique to the U.S., and countries across the globe have begun pushing back against climate change in order to mitigate these events.
Part of this pushback has been an increase in the implementation of ESG in business.
ESG stands for Environment Social Governance and refers to a set of standards and guidelines that seek to hold companies accountable for the impact they make on the world around them through their practices. Compliance with these regulations is meant to ensure that companies are doing what they claim when it comes to maintaining sustainable business practices.
After Tens of Billions in Insured Losses, Record-Breaking Hurricane Season Ends
The 2024 Atlantic hurricane season ends Nov. 30 after 18 named storms including the earliest Category 5 storm on record, and possibly one of the costliest hurricanes to the insurance industry.
Of the 18 named storms, 11 were hurricanes and five were major hurricanes — at least Category 3 with sustained winds of 111 mph. The average hurricane season is 14 named storms, seven hurricanes and three major hurricanes.
People
Mary Barra: Industry Leader of the Year
These are among the reasons we have named Barra Automotive News’ 2024 Industry Leader of the Year.
Three years ago, General Motors CEO Mary Barra set an ambitious goal: GM would have a fully zero-emission light-duty vehicle portfolio by 2035.
That goal continues to guide the automaker, even as its approach has changed. Electric-vehicle demand isn’t growing at the rate anticipated when Barra announced GM’s EV goal in 2021, as early adopters made way for mass-market consumers more concerned about price and charging availability.
Many automakers, GM included, have delayed or changed product plans and timelines in response to slower-than-expected EV growth. GM pushed back bringing a second electric pickup plant online, postponed the launch of Buick’s first U.S.-bound EV, and lowered its 2024 EV production forecast.
Yet Barra, 62, has remained steadfast about the automaker’s EV strategy even as she’s had to scale it back. GM has been able to absorb the changes, she has said, because its leadership built in manufacturing flexibility to turn out gasoline or electric vehicles depending on which way consumer demand swings — avoiding overproduction that leads to profit-eroding incentives.
2025 PREDICTIONS
Global Insights Center: Year Ahead 2025 | The Hartford
by The Hartford Staff
Risks and opportunities in 2025 will likely be driven by changing world order, trade and demographics.
Risks and opportunities in 2025 will likely be driven by a few key macro themes emerging globally. Some of these we’ve discussed in prior years, whereas others are we are layering on as additional considerations.
We'll first identify these macro themes to help us better understand the expected state of the world. After discussing these themes, this report will dissect the emerging risk and opportunities we expect in the year ahead.
Three Macro Themes: World Order, Trade and Demographics
Theme 1: A Fracturing World Order
We’ve discussed this theme quite a bit but shifts in the global order will only accelerate in the coming year, influencing how nations interact with one another. And these changes could unfold in complex, nonlinear ways.