A banner year for auto insurer profits
Unexpectedly, 2020 is turning into a banner year in terms of auto insurance profits. The latest news from FitchRatings says that auto insurance profits rose sharply in the First Half of the year (“1H20”). This was largely due to consumers’ behavior with respect to the reduced driving and ‘unprecedented reductions’ in claim frequency. As a result, profits have been such as to offset the higher costs insurers have incurred in other multiple segments such as business interruption, professional liability, and professional liability.
In particular, 1H20 personal auto results for eight of the largest publicly traded private passenger auto insurers in the U.S., noting that GAAP reporting results showed “…a 6.5 point decline in the segment combined ratio to a highly profitable 85.5%.” The report also notes that Allstate, GEICO, and Progressive noted that their claims frequency was down almost 30% at the mid-year mark.
The Northeast region saw the largest decrease in overall traffic volume
Building on the FitchRatings Research, Agency Checklists thought it worthwhile to take a look at the Federal Highway Administration volume trends across the nation. According to the latest data available in June 2020, ‘Cumulative Travel’ or the overall traffic across America decreased by approximately 16.6% or by -264.2 billion vehicle miles during June 2020.
The Northeast saw the steepest decline in traffic volume during this time period with a -19.2% change in traffic volume. The following screenshot from the Department of Transportation’s website shows each region’s traffic volume change:
In addition, the monthly update highlighted the following statistics about travel during the month of June:
- Travel on all roads and streets changed by -13.0% (-36.5 billion vehicle miles) for June 2020 as compared with June 2019. Travel for the month is estimated to be 244.7 billion vehicle miles.
- The seasonally adjusted vehicle miles traveled for June 2020 is 231.3 billion miles, a -14.5% (-39.2 billion vehicle miles) decline from June 2019. It also represents a 15.6% increase (31.3 billion vehicle miles) compared with May 2020.
- Cumulative Travel for 2020 changed by -16.6% (-264.2 billion vehicle miles). The cumulative estimate for the year is 1,331.2 billion vehicle miles of travel.
The report, however, offers a cautionary note as traffic volume returns to a more ‘normal’ level . “[T]he recent improved short-term performance of auto insurers is unsustainable, and we expect profit challenges in the future as regulatory and competitive pressures hinder any rate increases when losses return to historical norms. Driving activity is now increasing. While the timing remains uncertain, frequency of claims will eventually move toward traditional levels, and loss severity moves perennially upward for auto insurance.