Tough Times Ahead for US Auto Insurers As Losses Spike

Some of the largest US auto insurers are experiencing elevated loss trends as Americans hit the road following pandemic-induced lockdowns. That’s according to an S&P Global Market Intelligence report, which reveals that 14 of the 20 biggest car insurance providers saw a deterioration in loss ratios by double-digit percentage points year over year in Q2. 

At the top of that list is State Farm Mutual Automobile Insurance, which recorded a loss ratio of 70.1% compared to 43.1% in 2020. Meanwhile, the company’s premiums shrank 0.7% to $10.38 billion. 

Another two industry heavyweights, GEICO Corp. and The Progressive Corp., saw their loss ratio increase to 73.3% and 65.8% from 50.8% and 43.5%, respectively.

The Illinois-based insurance giant Allstate Corp. wasn’t spared either, reporting a loss ratio of 69.4% in Q2. During the same time last year, its loss ratio was 48.7%. The company’s premium written jumped 14.5% to $6.50 billion. Allstate’s CFO, Mario Rizzo, said that the car damage gross frequency jumped to 47.3% from Q2 2020 but is 21% lower compared to the same period in 2019. 

"Auto severity increases persisted relative to the prior-year quarter and pre-pandemic periods across coverages, largely driven by the shift in mix to more severe, higher-speed auto accidents and rising inflationary impacts in both used car values and replacement part costs," Rizzo explained. 

For his part, Wells Fargo analyst, Elyse Greenspan, is warning of a “tough environment” for private auto insurers with loss trends likely to remain high. Greenspan attributes higher severity trends to increased labor costs and higher prices of new and used cars. 

Auto insurers enjoyed a spike in profitability during the pandemic lockdowns in 2020. According to the American Property Casualty Insurance Association, the companies refunded more than $14 billion to policyholders for reduced driving.