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‘Erratic’ Personal Auto Market Drives Shoppers to Distraction

After a tough couple of years, personal auto rates showed signs of stability in 2019. But as the market moves further into 2020, there are signs that this trend isn’t being witnessed across the board.
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After a tough couple of years, personal auto rates showed signs of stability in 2019. But as the market moves further into 2020, there are signs that this trend isn’t being witnessed across the board.

“It’s been erratic,” says Laura Sherman, a founding partner of Baldwin Krystyn Sherman Partners in Tampa, Florida. “On average, we’re seeing rate increases anywhere between 5-9%. But then I’ve talked to insurance companies who are saying, ‘we’re losing business, so now we’re going to be flat or take minor rate reductions.’ So, it’s confusing.”

Moreover, across the industry, insurers are using more and more factors to influence underwriting and pricing. “In the past, if an insured was in an accident and made a claim, that could increase their premium by around $400,” explains Sherman. “Now, insurers have multiple rating tiers and some insurers use 92 data points to derive a rate. Prices can vary from household to household.”

“You could have two identical-looking risks, but you can get vastly different rates, based on their credit, their loss history, the type of cars they have, so it’s just not as predictable anymore,” she adds.

“Across the industry, we are seeing a rise in distracted driving, as well as social inflation adding to liability costs, while cars equipped with safety technology are becoming more expensive to repair,” says Dan Halsey, president, personal lines, The Hanover Insurance Group, Inc. “In this changing market environment, independent agents play a critical role in guiding their customers to the right insurance solutions for their needs, offering valued consultation and advice.”

The differences between auto carriers’ rate strategies are driving competition and “it’s forcing clients to shop their auto more,” Sherman says. “It’s a very confusing marketplace so I can see why clients feel the need to shop, because they want to be sure they’re getting the best rate and the best coverage.”

However, in the current market, the balance between “the best rate and the best coverage” is finely poised. Amidst a plethora of marketing and fierce competition, “we are finding that direct writers are aggressively selling lower limits,” Sherman says. “If you think about social inflation or losses from uninsured motorists, I’m wondering if insurers are doing that intentionally to lower their exposure.”

“That reinforces the need for independent agents who can provide counsel to explain that just because the auto insurer does not have to pay out due to capped limits, that doesn’t mean that you are not personally exposed,” she adds.

“Many state minimum liability limits do not offer enough protection,” agrees Halsey. “We are seeing more agents increasing these limits to account for rising medical costs and a more litigious society.”

As direct writers continue to put pressure on consumers shopping for policies, the market is as competitive as ever. With the right approach, the market provides conditions that make it an ideal time for independent insurance agents to both grow and consolidate their personal auto book.

“After a few years of rate increases as many carriers sought a return to profitability, the market seems to be stabilizing and slowing down,” says Diana Palinski-Roberts, distribution manager, North Central Region, Progressive Insurance. “In addition to taking this time to develop lead sources and market your agency and all it has to offer to new customers, this is a great time to work on communication and marketing to current customers, making sure they are aware of and, hopefully, have all the coverages your agency can offer.”

Will Jones is IA senior editor.