During the ongoing pandemic, the slowdown in economic activity and policyholders cutting back on driving may drive an increase in profits, resulting from reduced auto claims activity for personal lines insurers.
Complying with state-mandated actions, some insurers have returned premiums to policyholders. According to California officials, California drivers have received $1.21 billion in savings for March, April and May. The total dollar amount returned is estimated at more than $10 billion, with 15.0% to 20.0% of premiums refunded. Experts argued that insurers should have returned more than they have, and they have repeatedly called on state insurance commissioners to require premium refunds. Most states have not mandated refunds. Some insurance companies have benefited from this situation. For example, Progressive Insurance reported an 83.0% increase in net income for the second quarter of 2020, with proof of returning 20.0% of premium to its policyholders. That shows recent premium returns and rebate actions do not fully offset lower claims experience. At the same time, experts indicated that it may foster price competition when economic and claims activity normalizes.
With the uncertainty in underwriting and investment performance tied to the pandemic, Fitch Rating maintains a stable rating outlook on the U.S. Property & Casualty (“P&C”) insurance industry, including the personal lines sector. Personal lines insurance is the largest major segment of the U.S. P&C insurance market, with approximately $344 billion (54.0% of total industry premiums) in 2019 written premiums. Personal auto insurance premiums represent more than 2.7x that of homeowner's insurance volume for the industry. Additionally, personal lines posted a 98.7% combined ratio in 2019, less than 1.0% better than the 99.4% combined ratio produced the year before.
Auto insurers’ premium growth in 2020 will greatly diverge from historic trends, but the long-term shift in market share towards large publicly held underwriters with direct distribution and sophisticated pricing capabilities will not be affected.
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