Auto insurers in the U.S. are coping with the largest direct loss ratio in 20 years because of factors that include historic inflation, a deterioration in driving behavior and sky-high jury awards, the American Property and Casualty Insurance Association says in a new report.
APCIA said the direct loss ratio for auto physical damage reached 77.1 percent in the third quarter of 2021 — after reaching an historic low of 45.2 percent during COVID-19 business shutdowns in the second quarter of 2020.
The report says traffic levels regained as pandemic restrictions eased and were within 1 percent of pre-pandemic levels in the first half of this year. Along with the return to the roads came a 10 percent increase in the fatal accident rate from 2020 to 2021, the largest percentage increase in history. U.S. private passenger auto losses jumped 25 percent from 2020 to 2021.
“One of the things we ask in the report is, ‘Is this the new normal?'” said Robert Passmore, the APCIA’s vice president for personal lines. “What is the new normal?”
Normal is definitely more expensive. The report noted the inflation rate peaked above 9 percent in July before dipping to 8.3 percent in August. But U.S. auto insurers are facing a variety of additional factors that are expected to continue pushing claims costs up into 2023 or longer.
The report includes several statistics that illustrate this trend:
The report says auto insurance rates have not increased enough to keep up with increasing costs. Direct written premiums for personal auto increased just 4.6 percent since last year, far below the rate of escalating losses.
Passmore said the ability of insurers to increase premiums is confined by intense competition in the industry. He said APCIA published the report, in part, to educate the public and regulators about the pressures that are forcing insurers to ask for back-to-back rate increases.
At least once consumer advocate is skeptical about the industry’s tale of woe.
Harvey Rosenfield, the founder of Consumer Watchdog in California, said very few insurers reduced rates during the pandemic even though the number of miles driven plummeted. While APCIA says the industry issued $14 billion in refunds to consumers, Rosenfield said a study by his organization found that the industry saved far more than that because of a drastic reduction in claims.
“There was a reduction because our cars were sheltering in place in our driveways,” he said.
Rosenfield said the insurance industry will look for any means necessary to distract the public from its “massive thievery” during the pandemic.
“The insurance industry will use any excuse to argue for the need for them to raise premiums,” Rosenfield said. “It’s all driven by their desire to maximize their profits at the expense of consumers.”
Top photo courtesy of APCIA