The U.S. private passenger nonstandard auto insurance market is showing signs of improvement after several years of volatility and unprofitability.
This update comes from a recent AM Best report titled "Favorable Signs for Nonstandard Auto Insurers."
The report indicates that underwriting results were slightly profitable during the first six months of 2024, leading to modest pre-tax operating income and net income. This positive trend is attributed to several factors, including rate increases and company initiatives aimed at improving underwriting, pricing, and claim handling.
The nonstandard auto market has historically experienced worse annual underwriting results than the standard auto market. This is primarily due to notably higher underwriting expense ratios for nonstandard auto companies. Nonstandard auto business is transaction-heavy, which places more pressure on operational efficiency.
Several headwinds have challenged the profitability of both standard and nonstandard auto insurers since the onset of the COVID-19 pandemic.
These challenges include persistent rate inadequacy, inflationary pressures on physical damage claim costs, and an increase in attorney-represented bodily injury claims. The pandemic's impact on the number of cars on roadways and miles driven in the U.S. led to record underwriting losses in 2021 and 2022.
However, insurers have taken steps to address these challenges. Rate increases are just one aspect of the initiatives undertaken by standard and nonstandard auto insurers.
Auto insurers have also refined risk selection and underwriting standards to improve the overall quality of insured policyholders. These initiatives have resulted in improved underwriting results for the private passenger nonstandard auto (PPNSA) composite during the first half of 2024.
The improved underwriting results in 2023 continued through the first half of 2024.
A more than $450 million underwriting loss in the first half of 2023 improved to a small underwriting gain in 2024. This positive change led to the generation of first-half 2024 pre-tax and net operating income.
Direct premiums written (DPW) have also been rising over the past several years. For the first half of 2024, DPW has grown by 24% year-over-year.
Despite the improvements, challenges remain for nonstandard auto insurers. In 2023, the nonstandard auto market experienced an uptick in adverse reserve development, likely reflecting the effects of economic inflationary pressures on physical damage claims and social inflation pressures on liability claims.
What are your thoughts on the future of the nonstandard auto insurance market? Share your thoughts in the comments section.
