Why Intact is paying out less on total auto losses

Intact Financial Corp. is maintaining a mid-80s combined ratio on its Canadian personal auto book of business, with a slight decrease in the severity of total losses.

At Intact, the severity of claims on auto physical damage was 5% higher in the three months ending Sept. 30 than during the same period in 2020, chief operating officer Patrick Barbeau said Wednesday during a conference call discussing the Q3 2021 financials.

One factor is recent driving habits. Intact is observing less traffic concentration especially in morning rush hour, compared to what rush hour traffic was like before COVID-19 was declared a pandemic in March of 2020.

“That creates more severe accidents. There is less of the small bumper claims in the mix,” said Barbeau.

Intact is not observing higher severity in bodily injury auto claims.

The higher price of parts, especially sensors and cameras – a trend auto insurers have been observing for several years now – puts both an upward and downward pressure on claims severity.

“When a car is declared a total loss – which is when we have to replace the car with a new or used one – we sell the damaged car for the parts and we have seen significant increases there in the recoveries. So when I look at Q3 – the total loss severity is actually slightly down in Q3 this year versus last year,” said Barbeau.

Intact reported Tuesday its combined ratio, in personal auto in Canada, was 85.1% in the latest quarter – essential unchanged from 84.9% in Q3 2020.

“Driving is definitely very close to normal if not at normal. Patterns of driving, though, are different,” Intact CEO Charles Brindamour said Wednesday during the earnings call. He was alluding to changes in traffic patterns during COVID-19.

Company-wide, direct premiums written rose from $3.264 billion in Q3 2020 to $5.447 billion in the latest quarter. That’s a 68% increase, but 61% of that was driven by the acquisition of RSA PLC’s operations in Canada, Britain, the Middle East and elsewhere in Europe. In the three-way deal that closed June 1, 2021, Tryg A/S bought RSA’s operations in Sweden and Norway. Both Tryg and Intact initially shared RSA’s Danish operation 50-50 but the Danish operation has since been sold off.

So the three months ending Sept 30, 2021 is the first quarter in which Intact is reporting premiums for the UK and International business. That amounted to $1.264 billion in the latest quarter.

In addition to writing P&C in Britain, Intact’s new UK and International operation (formerly part of RSA) also writes insurance in Ireland, Belgium, France, Spain, the Netherlands, Bahrain, the United Arab Emirates, Oman and Saudi Arabia.

South of the border, Intact writes commercial specialty, a result of buying OneBeacon in 2017.

Intact reported Nov. 9 a 4.2-point deterioration in its third-quarter combined ratio, from 87.1% in 2020 to 91.3% in the latest quarter. In Canadian home insurance, the combined ratio rose nearly 10 points from 83.7% in 2020 to 93.5% this year. Much of that was higher-than-expected catastrophe claims (of $204 million) in Canada in Q3. Those catastrophes included rain and hailstorms in Alberta, Ontario, and Atlantic Canada.

Feature image via iStock.com/ftwitty