This story first appeared in FA-IQ sister publication P&C Specialist.
In a sign of what 2023 has in store for the personal lines industry, a top Travelers The executive is predicting car price increases in the mid-teens for policyholders next year.
Executive vice president and president of personal insurance Michael Klein shared the estimate during a Q3 earnings call with analysts. The rate hike is part of a larger plan by the top 10 personal insurance companies to mitigate underwriting losses as auto combined ratios reached 105.4% in the third quarter, up from 91.3% in the same period last year. The carrier suffered a $340 million private auto underwriting loss for the financial period, a reversal from an underwriting gain of $351 million in the third quarter of 2022.
While Klein was clear that prices would rise significantly, he also recognized that auto insurance profitability wouldn’t happen overnight.
“We expect the change in domestic auto renewal premiums to be in the double digits in the fourth quarter and into the mid-teens through 2023,” Klein said on the call. “Written prices should be adequate between now and mid-2023 in most states that represent the bulk of our business. And that pricing will drive our results over time.
In detailing mid-teen price increases, New York City-based Travelers stood out as one of the first to offer more transparency on loss reduction strategies in 2023.
Meyer Shieldsdirector at Keefe, Bruyette and Woods, said mid-teen prices are “critically important.” He noted that auto insurance companies made a lot of money during the pandemic because people were sitting at home and not driving. But, he added, that “slide almost on a dime into the middle of 2021, when the drivers came back.”
According to data from S&P Global Market Intelligence, an estimated 8,730 people were killed in road accidents in the first quarter of 2021, an increase of 10.5% from the same period last year. The increase in accident severity impacted the results of many top insurers in the second quarter, as reported.
On top of an increase in accident severity, supply interruptions and skyrocketing repair prices made auto insurance “phenomenally” unprofitable, Shields said, adding that the only way to effectively combat that is to raise auto insurance prices.
“If you want to get back to the acceptable margin for this business, you essentially have to accept that level of markup,” he continued.
Rate hikes continue
Carriers have become increasingly assertive over the past year about their use of fare increases to cure ailing combined ratios.
Allstate has disclosed that it will see a potential loss of to $725 million for Q3, and it detailed its actions on price increases.
“In the month of September [the] The Allstate brand implemented auto insurance rate increases of 16.2% at eight locations, resulting in a total impact on Allstate brand insurance premiums of 0.9%,” the carrier wrote in a statement.
The Fortune 100 company also noted rate increases of 10.8% since early 2022 on a company-wide basis. The increases resulted in $2.6 billion in additional annual premiums, of which $1.1 billion came in the third quarter.
Additional action required
Travelers is also busy implementing non-fare-related changes to improve profitability, Klein says. During the call, he said the insurer is tightening underwriting criteria, limiting binding authority for agents in certain states and reducing its presence in California and Florida.
Shields agreed with the airline’s decision to reduce its emphasis on California, saying Travelers wants to be competitive in the state, but also not unprofitable at a time when regulators are stalling on fare increases.
“They may lose in the short term because of the long-term benefits of adding a new customer, but I don’t think they have that confidence,” he said.
Shields added that if he went to an independent agent’s office in the state looking for a new insurance policy, Travelers probably wouldn’t show up since they’re not focused on growing in California.
Travelers can also change deductibles, marketing costs and how and to whom they are advertised to ensure they aren’t locked into more unprofitable businesses, Shields said.