US auto losses rising on reckless driving, 'legal system abuse'

US auto insurance profitability has sharply deteriorated with loss ratios now exceeding pre-pandemic levels, the Insurance Information Institute (Triple-I) says.

The combined operating ratio is forecast to rise to more than 105% for this year, after it had fallen to 92.5% in 2020, the best underwriting result in at least 25 years.

Triple-I says drivers have returned to the road with riskier behaviours and insurers are seeing increasing accident frequency and severity and record levels of fatalities and injuries.

Other factors causing the deterioration include supply chain issues that increase costs for cars, parts and labour, more costly repairs due to vehicle sophistication and over-inflated claims payouts because of legal system abuse by personal injury attorneys.

At the beginning of the pandemic, in the second quarter of 2020, the personal auto loss ratio was 47.5%, compared with 78.2% in the second quarter of this year.

Among the top five US auto insurers, the liability loss ratios topped 80% in the June quarter. Triple-I says liability coverages are the main components of a personal auto policy and pay for the policyholder’s legal responsibility to others for property damage and bodily injury.

“The industry’s recent deteriorating performance in liability coverages may reflect increased litigation as courts re-open with the waning of the Covid-19 pandemic,” Triple-I Chief Insurance Officer Dale Porfilio said.

“More lawsuits – combined with increased accident frequency and severity, fatalities, and replacement costs – indicate the need for higher personal auto insurance rates.”

Traffic deaths, after decades of decline, increased during the pandemic and reached a 16-year high last year as a result of more people speeding, driving under the influence or not wearing seat belts, a trends and insights report says.

“When everyday life came to a halt in March 2020, risky behaviours skyrocketed and traffic fatalities spiked,” National Highway Traffic Safety Administration administrator Steven Cliff said. “We’d hoped these trends were limited to 2020, but, sadly, they aren’t.”