A combination of rising loss costs and the impact of Hurricane Ian pushed the U.S. private auto insurance industry's direct incurred loss ratio in the third quarter to its highest level since at least 2001.
Loss costs exact heavy toll
The loss ratio for the business line spiked to 83.4% in the third quarter, up from 72.1% a year ago, according to an S&P Global Market Intelligence analysis of individual property and casualty filers that submit regulatory statements to the National Association of Insurance Commissioners.
The analysis also showed that all but one of the 10 largest carriers saw their direct loss ratios increase compared to the second quarter, including State Farm Mutual Auto Ins Co, whose ratio jumped to 99.4% from 93.0%. United Services Automobile Association was the second company to see their loss ratio increase above 90% as the company logged a loss ratio of 96.9% during the third quarter.
Berkshire Hathaway's GEICO Corp. saw its ratio increase to 89.4% from 86.4% last quarter after handling approximately $600 million in claims from from Hurricane Ian.
The loss ratio of 83.4% for the business line is the highest since S&P Global began collecting quarterly regulatory data in the first quarter of 2001, surpassing the loss ratio of 78.4% reported in the second quarter. It also marks the fifth-straight quarter the ratio has been above 70%.
Along with continuing inflation, other factors created a drag on their brands. Tim Zawacki, principal research analyst for Market Intelligence, said in an analysis that the effects of private auto physical damage coverages, elevated repair and replacement costs, and longer-than-usual times to close auto insurance claims negatively affected the industry.
State Farm still on top
State Farm which remained the market-share leader in direct premiums written, saw its loss ratio further deteriorate, rising to 99.4% from 93% in the second quarter. State Farm had $12.19 billion in direct written premiums for the quarter, a 10.8% year-over-year increase.
Progressive Corp. jumped over GEICO to take the second spot in the quarterly market-share analysis with $9.93 billion in premiums. Progressive had the lowest increase in loss ratio among the top 10 carriers, rising 2.8 percentage points to 71.1%, compared to 68.3% in the second quarter.
Fourth-ranked Allstate Corp., which had the second-highest jump in premiums written at 11.5%, is taking action to combat the financial burden. Mario Rizzo, president of property-liability, said during the company's third-quarter earnings call that the insurer is looking for rate increases in its auto segment as well as decreasing operating expenses and changing claims practices to adapt to "a high inflationary environment."
"Given the ongoing loss cost inflation, we expect to implement additional rate increases in the fourth quarter of this year and into 2023," Rizzo said.