Travelers Cos. Inc. is working on improving the profitability of its personal auto business as higher bodily injury severity continued to pressure the underwriting results of the business, executives said during an earnings call.
The insurance company reported that its personal insurance segment posted pretax underwriting gain of $23 million in the fourth quarter of 2016, a significant decline from $234 million in the prior-year quarter. The company partially attributed the lower underwriting gain to higher loss estimates for personal auto bodily injury liability coverages.
Discussing the higher-than-expected bodily injury losses that Travelers experienced during the fourth quarter of 2016, President and COO Brian MacLean said, "The deterioration is primarily driven by an increase in the trend toward more severe accidents. Some of the factors that lead us to this observation are a higher percentage of claims involving distracted driving, more accidents involving higher speeds and more accidents on highways and intersections."
MacLean denied that Travelers was late in recognizing the trend, saying the insurer has quickly responded to the change in trend. In October 2016, CEO Alan Schnitzer said that the insurer was going to push for rate changes due to higher bodily injury severity across its auto product portfolio.
In addition to the rate increases implemented in November 2016 and December 2016 in 16 states, MacLean said Travelers will push for further rate increases for its personal auto products and improve its underwriting process to counter the impact of bodily injury severity trends on its auto business.
CEO Alan Schnitzer said, "Our claim data, the public chatter we hear from others in the marketplace and other third-party data, all caused us to continue to believe that our experience is principally environmental as opposed to specific to us or our Quantum auto product."
The negative development in the auto business weighed on the profitability of Travelers' personal insurance segment. The segment saw its combined ratio deteriorate to 98.2% in the fourth quarter of 2016 from 86.7% in the year-ago quarter. The segment's underlying combined ratio also increased to 93.2% from 86.2% year over year.
MacLean said the auto combined ratio for the fourth quarter of 2016 was 116.7%, suggesting that the business was making underwriting losses due to higher-than-expected bodily injury losses.
"While it will take 18 to 24 months for the actions we're implementing can fully earn into the portfolio, we do expect that the auto combined ratio will improve in 2017," MacLean said.