First-Quarter P-C Pricing: Auto Prospects ‘Don’t Look Good’

Reflecting no change from the last quarter of 2017, composite rates for commercial and personal lines were up +2% and +3%, respectively, in the first quarter of 2018 according to the latest quarterly MarketScout pricing survey.

In commercial lines, the only coverage line that did not clock a year-over-year rate increase was workers compensation, which registered a -2% decrease compared to first-quarter 2017. Meanwhile, the only coverage line where average rates moderated since the close of last year was employment practices liability insurance. Between fourth-quarter 2017 and first-quarter 2018, business interruption, inland marine and professional lines insurers all raised rates by +1% more than they did in the last quarter of 2017.

Average commercial auto rate increases held steady at +5%—still the greatest increase of any coverage class, “due to increasing expenses and adverse claim development,” says Richard Kerr, MarketScout CEO. “Insurers are struggling with this segment of our industry.”

Part of the problem is actual underwriting results, Kerr explains; part is expense ratios. But the bigger issue, he believes, is “the uncertainty of the long-term prospects for the auto insurance industry.”

“The questionable future of auto insurance could be impacting insurers’ willingness to invest in new safety concepts, pricing models and distribution alternatives,” explains Kerr, who notes that autonomous vehicles are ready to change the auto insurance industry permanently. “Many tech firms are working hard to deploy new insurance alternatives which reflect the lower claims frequency and severity anticipated by driverless or driver-assisted trucking exposures.”

The potential consequences? “Traditional auto insurer opportunities will shrink unless they adapt their business models to get in the middle of the autonomous vehicle parade,” Kerr predicts.

Personal auto is following a similar trend. While homeowners insurance rates are fluctuating based largely on geography and claims history, registering a +3% composite in first-quarter 2018 compared to +4% in fourth-quarter 2017, personal auto insurers are raising prices across the board to keep up with the pace of expenses and claims. Average personal auto insurance increases came in at +4% in first-quarter 2018, compared to +3% in fourth-quarter 2017.

“Retail agents are already being pounded by insurers going direct to their customers. The entrance of auto manufacturers into the auto insurance space will further reduce the amount of premium available to auto insurers and will exacerbate the already decreasing opportunities for retail agents,” Kerr says. “As an insurer, the long-term prospects for personal auto insurance don’t look good. As an agent, they look horrible.”

Jacquelyn Connelly is IA senior editor.