Private passenger automobile insurance rates may increase this year as insurers seek to keep up with worsening loss cost trends, an investment analyst said.
In an analyst’s note, Meyer Shields, with the investment firm Stifel Nicolaus, said auto insurers can now justify their requests for rate changes because they “can now make a legitimate actuarial case for rate increases, despite their recent profitability.”
He said most insurers include adjusted state-specific premium and loss data to back up their calculations, not companywide historical results.
He noted that only 19 states, representing 50 percent of private passenger auto written premium, require prior rate approval, and he believes that many will allow reasonable rate increases.
Both Allstate and Progressive should benefit from increases, he noted, improving Allstate’s competitive position and stimulating more shopping at independent agents’ offices, a benefit for Progressive.
Mercury General may not fare so well due to its significant market share in California, a state where other companies are expected to encounter difficulty in getting rate increase requests approved.
Slow growth remains a risk for both Allstate and Progressive, even as other insurers raise prices in the face of increased loss trends. However, he said, the short-tail nature of this line “suggests that this is a temporary challenge” because companies that react late to loss trends “see the greatest disruption when they finally adjust their rates.”