Improved underwriting results a key target for US nonstandard auto insurers – AM Best

The US nonstandard auto insurance segment has shown a marginal improvement in its underwriting losses for the first half of 2023, with a reported loss of $333 million, compared to a $773 million loss in the same period the previous year. This highlights a need for better underwriting results for the sector at large.

This update comes from a recent AM Best report titled “Nonstandard Auto Insurers Aim for Improved Underwriting Results.” The report indicates that the companies in its private passenger nonstandard auto composite are still grappling with rate inadequacy and inflationary pressures leading to increased claim costs. Despite leveraging data tools and technology to address these challenges, achieving substantial improvements in underwriting results remains challenging.

A notable development, according to the report, is the achievement of record quarterly premium volumes. In the first quarter of 2023, the direct premium written for this segment surpassed $6 billion for the first time in a single quarter.

“The need for higher premiums demonstrates the prevailing effect of inflation on loss costs and the efforts of nonstandard auto insurers to catch up with, if not get ahead of, those negative trends,” said David Blades, industry research and analytics associate director at AM Best. “These efforts may result in some progress in offsetting higher claim costs, partially mitigating the recent upsurge in the composite’s combined ratio and worsening underwriting losses.”.

The first half of 2023's underwriting loss is a continuation of a trend seen in 2022, where the segment incurred $1.5 billion in underwriting losses. The market segment outlook for the US personal automobile segment, which includes nonstandard auto insurance, remains negative due to challenging operating conditions and results.

Historically, the nonstandard insurance composite has exhibited weaker results than the standard private passenger auto market. This is attributed to the complexities involved in insuring higher-risk policyholders. The report highlights the ongoing struggle of nonstandard auto insurers to balance rate adequacy with increasing claim costs and the need for continuous adaptation to the evolving market dynamics.

Elsewhere in the sector, it was recently found that roughly one in seven (14%) drivers in the US operated their private-passenger vehicles without liability insurance in 2022, according to new analysis by the Insurance Research Council (IRC).

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