Slow and Steady: Expect Modest Price Increases for Personal Lines

As big players continue to trumpet lower prices for personal lines insurance, their promises won’t mean much for a simple reason: Overall premiums in the personal lines market continue to rise in the low single-digits.

“We’re looking at 3–4% increases in private passenger automobile insurance this year, and slightly higher rates in homeowners insurance,” says Bob Hartwig, president and chief economist at the Insurance Information Institute (I.I.I.). “This is a trend that will likely continue into next year.”

Hartwig chalks that up to the potential impact of more western wildfires on the homeowners market and modest increases in medical costs on automobile insurance.

Alan Dobbins, an insurance research analyst at Conning & Company, says prices in the personal lines market will increase at a declining rate of acceleration. “What ticked up prices the last four years, in part, was the depressed investment environment, which put more emphasis on rate,” he explains. “That is now easing a bit. But we nonetheless predict continuing firming—just at a lesser rate.”

Another factor in the slowdown? Competition. “With Wal-Mart and Overstock.com getting into auto insurance, Geico passing Allstate to become the No. 2 auto insurance seller after State Farm and the prospect of other, new players in future, the industry is becoming more competitive and incredibly price-focused,” Dobbins says. “With regard to homeowners insurance, different factors are at play. We still see rates firming a bit in future, but no big jumps.”

Unless, of course, a major catastrophe or series of more modest disasters wreaks financial havoc. “Catastrophe losses last year were relatively low compared to previous years,” says Tracy Dolin, director, Standard & Poor’s Insurance Rating Services. “That said, we really haven’t had what anyone would think of as a ‘normal catastrophe year’ in a long time.”

In other words, prices are not going down—at least not any time soon.

Russ Banham is an IA contributor.