Where auto insurers are seeing the biggest profitability improvements

Canadian auto insurers saw both an increase in auto premiums and an improvement in their loss ratios in 2020, according to research from A.M. Best Company Inc.

“Less miles driven translates into less frequency in auto losses,” A.M. Best director Raymond Thomson said Thursday during his firm’s Canada Insurance Market Briefing.

During a panel discussion, moderator Sridhar Manyem asked how auto insurance did, overall, in Canada, during the COVID-19 pandemic.

“The results certainly improved,” replied Thomson.

In a paper released Wednesday, A.M. Best included loss ratios for the Canadian P&C industry in several lines including auto liability, auto personal accident and auto-other. In two of those categories (auto liability and auto-other), the loss ratios improved. The ratio in personal accident deteriorated 6.3 points, from 80.6% in 2019 to 86.9% in 2020). Only 16.3% of the $24.3 billion, in total auto net premiums written in 2020, came from personal accident.

The liability loss ratio improved 4.9 points from 72.5% in 2019 to 67.1% in 2020 while the loss ratio in the “other” category dropped from 78.4% in 2019 to 62.6% in 2020, A.M. Best noted in the paper, titled Canada Insurance: P/C Segment Remains Resilient, L/A Segment Outlook Turns to Stable.

Those results excluded Lloyd’s, Insurance Corporation of British Columbia and Canadian branches of U.S. insurers’ operations.

“From a severity perspective, we still saw increase in severity due to inflation, supply chain issues, parts and labour a little tougher to come across,” Thomson said Thursday during A.M. Best’s Canada 2021 Hot Topics Panel Discussion, held online.

“We also heard, anecdotally, from many companies, both in Canada and in the United States, when the roads were less crowded and more wide open, we had a little more aggressive driving and some of the severity may have reflected poorer driving habits when an open road was right in front of you.”

Total premiums for Canadian auto insurers rose 12%, from $21.6 billion in 2019 to $24.3 billion in 2020.

“In Canada, some insurers gave refunds while others made rate adjustments to compensate for less miles driven,” Thomson said Thursday.

“All auto lines are exposed to loss frequency owing to distracted driving and the number of miles driven, but frequency was down significantly in 2020, as shelter-in-place requirements, business closures, and remote working arrangements led to a steep decline in miles driven,” A.M. Best said in its report on the Canadian insurance market.

Feature image via iStock.com/fstop123