Home / Personal Auto Insurance primed for Steeper Rate Increases; Waiting on State Farm to Lead?

Personal Auto Insurance primed for Steeper Rate Increases; Waiting on State Farm to Lead?

Personal auto insurance rates appear set to increase at an accelerated pace, according to one analyst firm, and insurers may just be waiting on the market leader to lead the charge.

In an industry update, Stifel Nicolaus notes that a 2012 Q2 analysis shows that direct written premiums for auto insurers rose just 2.5 percent, year-over-year. Stifel Nicolaus analyst Meyer Shields, speaking to PC360, notes that the 2.5 percent increase is relatively in line with increases seen since 2011’s third quarter.

The slower rate of premium growth compared to other insurance lines, he says, is an indication of a healthy market that is not volatile and does not see a lot of dramatic changes. However, Shields says loss costs are rising, and the recent trend of benign inflation “is starting to normalize.”

The Stifel Nicolaus analysis notes that market leader State Farm reported calendar year combined ratios of 105.3 and 123.3 in the 2012 and 2011 second quarters respectively — results the firm calls unacceptable. “We think [State Farm] needs to raise rates to remain profitable, which should pave the way for competitors to do the same,” the analysis says.

The industry was helped by a drop in its direct loss ratio of about 140 basis points in the second quarter, but Stifel Nicolaus attributes this mainly to “suppressed driving stemming from still-high gas prices and unemployment.”

As for individual insurers, Stifel Nicolaus figures show USAA Insurance Group, which insures only military personnel and their families, leading the way for percentage increases in year-over-year direct written premium among the top-10 auto insurers, ranked by total direct written premiums. USAA saw written premiums increase by 8.6 percent. Berkshire Hathaway ranked second with a 7.8 percent year-over-year increase.

Market leader State Farm saw written premiums increase by 1.3 percent, and second-ranked Allstate saw written premiums decline by 0.3 percent. Allstate was joined in negative territory by Travelers (-4.2 percent) and American Family Mutual (-2.9 percent).

Others in the top-10 include Progressive (6.5 percent increase in year-over-year direct written premiums), Farmers Insurance Group (3 percent increase), and Liberty Mutual (6.3 percent increase), and Nationwide (2.8 percent increase).

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