Major U.S. private auto insurers have responded to escalating loss ratios in southern and western states by raising rates sharply, according to an S&P Global Market Intelligence analysis of more than 700 rate filings in nine select states.
Direct incurred loss ratios for the private auto business line deteriorated across the entire U.S. in 2016. The national average loss ratio topped 70% for the first time in more than a decade, according to statutory data. And the nationwide average loss ratio of 71.99% reported in 2016 was the highest the private auto industry has seen since 2001, when the metric touched 72.61%.
Private auto losses have continued to climb nationally due to increased frequency and severity. Low gasoline prices and a gradual economic recovery led to a 3% increase in motor vehicle miles driven in 2016, according to the National Safety Council. Total motor-vehicle deaths rose to 40,200 in 2016, the highest since 2007. Distracted driving, which according to National Highway Traffic Safety Administration data claimed 3,477 lives and caused 391,000 injuries in 2015 alone, has become a serious issue as well.
Many states experienced worsening loss ratios in the private auto segment, but none more so than Louisiana. The Pelican State's loss ratio deteriorated sharply to 92.43% in 2016 from 71.95% just a year earlier. The last time Louisiana saw a private auto loss ratio higher than it recorded in 2016 was during the immediate aftermath of Hurricane Katrina.
The spiking loss ratio posed a challenge to private auto insurers in Louisiana. Market leader State Farm Mutual Automobile Insurance Co. received approval for a 12.90% rate increase in October 2016, covering $1.21 billion in written premium. Collectively, State Farm and its affiliate State Farm Fire & Casualty Co. could see a $177.8 million increase in written premium as a result of the rate hike.
State Farm's main competitors have subsequently raised rates; Louisiana's weighted-average rate increase in the private auto business line was 11.14%.
Among the major auto insurers to increase rates in Louisiana by double digits in the first half of the year were Progressive Corp., Berkshire Hathaway Inc. unit GEICO Corp., and National General Holdings Corp. Progressive notched a 10.22% cumulative rate increase; GEICO posted a 12.18% cumulative rate increase through two separate filings, approved Feb. 21 and March 22. Allstate Corp. received regulator sign-offs for more modest increases, getting a 7% rate hike approved April 10 and a 2.30% increase approved May 10.
National General had the highest rate increase approved in Louisiana overall during the first half. Its 26.40% cumulative rate increase is made up of two approvals received Feb. 15 and March 15. It could potentially see a $7.6 million increase in written premiums following the hikes.
South Carolina and Nevada were the other states besides Louisiana where weighted-average private auto rates increased by more than 10% in the first six months of the year. In South Carolina, GEICO raised rates by 7% in two separate filings approved in March. USAA Insurance Group and Nationwide Mutual also received approval for noteworthy rate increases, with cumulative rate hikes of 17.04% and 15.47%, respectively. Over in Nevada, State Farm received approval for a cumulative 13.63% rate increase April 19, which would theoretically result in a $56.4 million written premium impact.
Progressive has mostly bucked the trend of significant rate increases in a number of states. The company actually cut rates on its private auto business in Minnesota, Arizona, Wisconsin, Indiana and Iowa in June, having reduced rates in Illinois, Tennessee and Kentucky the month before. Progressive's soft pricing in the Midwest coincides with a time of marked personal auto policy growth, as the insurer reported nearly 11.2 million personal auto policies in July.
Click here for a template providing rate changes for a selected entity, state or type of insurance over a selected time period using interpretive charts and histograms. With this template, one can also view information on each filing along with key metrics related to premiums, approval time and affected policyholders.
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