Best’s Market Segment Report: Inflationary Pressures and Elevated Loss Severity Weaken Nonstandard Auto Performance

OLDWICK, N.J.--(BUSINESS WIRE)--
U.S. nonstandard auto insurers suffered a first-half 2022 underwriting loss of $766 million - the segment’s worst half-year result in five years – as the impact of inflation on auto repair and medical costs, as well as supply chain and labor market issues, have plagued the segment.

The Best’s Market Segment Report, “Inflationary Pressures and Elevated Loss Severity Weaken Nonstandard Auto Performance,” states that the results of the companies that make up AM Best’s private passenger nonstandard auto (PPNSA) composite reflect ongoing inflationary pressures, corresponding rate adequacy concerns and a variety of headwinds facing private passenger auto insurers. The first-half 2022 underwriting loss follows $1.3 billion in underwriting losses in 2021.

Although direct profitability has been deteriorating, quarterly premiums generated by the nonstandard auto composite have been growing as insurers respond to loss-cost pressures. Direct premiums written in each of the first two quarters of 2022 surpassed $5 billion and were higher than the premiums in any quarter from the start of 2018 through the end of 2021.

“The higher premiums reflect the impact of rising inflation on loss costs and efforts by nonstandard auto insurers to offset the impact,” said Michael Vallario, associate analyst, AM Best.

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 negative given operating conditions and results. Mid-year pretax operating and net operating losses for the nonstandard auto composite were the worst of the past five years as well, according to the report. Because of the time needed to assess rate needs and implement rate or price increases to address the decline in underwriting results, calendar-year 2022 results thus far show an ongoing reversal of the favorable 2018-2020 underwriting and operating metrics. AM Best expects the PPNSA’s near-term underwriting results to remain challenged with a noticeable improvement unlikely for most PPNSA carriers.

“Although the performance of nonstandard auto insurers continues to lag that of standard auto insurers, insurers in both markets face serious difficulties associated with rising claims costs, growing market competition and the inherent nature of insuring higher hazard private passenger auto risks,” said David Blades, associate director, industry research and analytics, AM Best.

To access the full copy of this market segment report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=326109.

AM Best is a global credit rating agency, news publisher and data analytics provider specializing in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more information, visit www.ambest.com.

Copyright © 2022 by AM Best Rating Services, Inc. and/or its affiliates. ALL RIGHTS RESERVED.

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Michael Vallario
Associate Analyst

+1 908 439 2200, ext. 5095

[email protected]

Christopher Sharkey
Manager, Public Relations

+1 908 439 2200, ext. 5159

[email protected]

Kenneth Tappen
Senior Financial Analyst

+1 908 439 2200, ext. 5248

[email protected]

Al Slavin
Communications Specialist

+1 908 439 2200, ext. 5098

[email protected]

David Blades
Associate Director,

Industry Research and Analytics

+1 908 439 2200, ext. 5422

[email protected]

Source: AM Best