Achieving rate adequacy has become increasingly challenging for personal auto insurers as rate filing approval processes have grown more cumbersome over the past decade, according to a study by the Insurance Research Council (IRC).
The study highlighted a 40% increase in the average time required to approve rate filings between 2010 and 2023.
According to a report from AM Best, the IRC’s analysis, which examined rate filing measures across the United States and Canada, found that insurers submitted approximately 10,200 filings annually, a figure that has remained relatively consistent.
However, delays in the approval process have coincided with a 10-point increase in the frequency of rate filings being returned with smaller approved rate changes than originally requested. Additionally, the gap between requested and approved rates widened by two points, while the number of withdrawn filings rose by 40% over the study period.
During the same timeframe, personal auto direct written premiums (DWP) grew 93%, reaching $317 billion in 2023. That year marked the largest annual increase, with DWP rising 14.3%.
Despite this growth, the IRC noted that personal auto insurers experienced underwriting losses in 11 of the 14 years studied.
The report also highlighted a moderate to strong correlation between underwriting losses and premium shortfalls at the state level over time. Weather trends, inflation, and shifts in driving behavior were identified as factors contributing to unexpected underwriting results. Timely rate approvals are critical for carriers to mitigate these risks, the IRC said.
“Ultimately, these protracted processes are causing more disparity from timely and necessary rate increases by insurance carriers to achieve adequate rate and helping push the industry toward a less competitive landscape," said Dale Porfilio, president of the IRC and chief insurance officer at the Insurance Information Institute.
The challenges outlined by the IRC align with findings from an AM Best report, which detailed similar struggles for commercial auto insurers.
According to the report, the commercial auto segment incurred a $5 billion net loss in 2023, and results for the first half of 2024 indicated further deterioration.
David Blades, associate director at AM Best, noted that while the deterioration in 2022 and 2023 was significant, it was partially due to artificially improved results during the COVID-19 pandemic, when fewer vehicles were on the road.
Blades cited these factors as a basis for AM Best’s negative outlook on the commercial auto segment, issued in March 2024.
The IRC’s findings underscore the need for a more efficient rate approval process to help insurers navigate a volatile market and maintain competitive operations. Attempts to obtain further comment from the IRC were unsuccessful.
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